KPMG Philippines - Guide For Businessmen and Investors 2010

Manabat Sanagustin & Co.
, CPAs
A Guide for Businessmen

and Investors 2010
Philippines
A Guide For Businessmen and Investors 2010 1

The information contained herein is updated as of April 2010 and is not intended to address the circumstances of any particular
individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such
information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on
such information without appropriate professional advice after a thorough examination of the particular situation.
© 2010 Manabat Sanagustin & Co., CPAs, a Philippine partnership and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
2 A Guide For Businessmen and Investors 2010

A Guide for Businessmen
and Investors 2010
Philippines
Preface
Investing in the Philippines
With the world economy recovering from financial turmoil,

companies are working hard to get back on track. It has been
determined that the two biggest keys to survive the financial
crisis are:
1) Cutting costs
2) Getting better value.
In these trying times, the Philippines offers investors

advantages that will help them weather the financial storm.
The Philippines is an attractive investment destination in the

Asia Pacific region. Along with the country’s strategic and
central location, as well as its vast natural resources, the
Philippines also has an abundant supply of highly-trainable,
skilled, educated and English-speaking labor pool. This gives
investors an opportunity to get better value for their money
and contain costs due to the relatively low cost of labor and
commodities in the Philippines. With the country’s highly-lib-
eralized economy, attractive investment incentives, and value
added services, the country is able to provide companies a
good reason to place their bet on the Philippines.
This guide provides an overview of the Philippines dynamic

business environment. It is intended for KPMG global
accounts, national clients and prospective investors in the
Philippines. To benefit fully from this guide, it must be noted
that there are varying circumstances between
industries, as new laws, jurisprudence, and regulatory
policies continue to emerge. These developments are natural
in these challenging times, and have to be charted so as not
to pose as hurdles. Manabat Sanagustin & Co., CPAs stands
ready to provide its clients with the necessary navigational
tools to help businesses map out their course to success in
the Philippines.

Contents
Investing in the Philippines:
Hot Investment Sectors 6

Setting up a Presence in the
Philippines 24
Accounting, Auditing
and Taxation 43
Getting Listed in the

Philippine Stock Exchange 52
Business and Economic

Overview 58
Foreign Trade and Investments 64
About the Firm 72
Appendix 76

Investing in the
Philippines:
Hot Investment Sectors
In this Chapter:
• Energy
• Real Estate
• Infrastructure
• Healthcare
Manabat Sanagustin & Co., CPAs

Energy
The Philippine Power Generation Sector continues to be filled with a wealth of opportunities for both foreign and local investors. With
power supply reserves running precariously low, the government realizes the urgent need to attract investments in the sector. It has
focused on implementing changes in the structure of the Power industry thus ensuring that the environment is attractive to investors
to participate in. Among these on-going structural changes are: a) the WholeSale Electricity Spot Market (WESM), b) the Privatization of
NPC assets, c) the IPPA and d) RE- Law.
As these changes continue to take place, investors can expect to reap the benefits of one of the most promising electric power
industries in Asia. By investing in the Philippine electric power sector now, investors will benefit from a regulatory framework that will
maintain a level playing field among participants while promoting competition in the generation and supply sectors.
Demand of Power in the Philippines
The growth in demand and the overall lack of capacity for electricity continue to provide the number one rationale for investments in
the power sector in the Philippines. Overall demand in the country is expected to grow at an average of 4.6 percent until 2014. The
two main drivers of this growth are: a) increased population growth and b) increased economic activity. In addition to this, there are a
number of power plants throughout the country that are expected to be retired, thereby further compounding the shortage in supply.
The additional capacity requirements for the Philippines is expected to reach 3,917 Megawatts (MW) by 2014.1
Historically, the Luzon grid, which accounts for 75 percent of the country’s total generation and installed capacity, continues to drive
demand. By 2014, power demand is expected to grow to 11,596 MW - an increase of 39.6 percent from its 2006 levels of 8,302MW.2
(Source: PSALM Industry Prospectus, January 2010). Further, shrinking the available supply of electricity is the planned retirement of
the Hopewell Geothermal Plant (100MW) in 2010 and the Malaya Thermal Plant (650MW) in 2011.3
Massive power shortages are expected in the Visayas Grid by 2011 if there are no additional capacity additions. The Visayas Grid requires
869MW of additional capacity until 2014 to meet the electricity demands in the area.4
1 PSALM Industry Prospectus for 2010

2 IBID
3 Department of Energy – Investment Promotion Office and Website
4 PSALM Industry Prospectus for 2010

The Visayas grid is composed of five main but interdependent subgrids: Leyte-Samar, Tax Perpectives:
Bohol, Cebu, Negros and Panay. These islands are interconnected by submarine cables
that make up the transmission system for the region. The additional capacity is also
expected to cover the retirement of the 55-MW Land Based Turbine 1 in 2011. The
average annual growth in demand in the Visayas has been at 5 percent per year.5
In Mindanao, the Department of Energy (DOE) has forecasted an annual average

growth in demand for electricity at 6 percent from 2006 to 2014. Electricity demand is
expected to reach 2,112 MW by 2014 – and an additional capacity of 850MW will have
to come on line in order to match this demand.
Whole Sale Electric Spot Market (WESM)
As the entire archipelago becomes interconnected through the development of power

transmission lines and underwater cables by the National Grid, investors stand to
benefit from the development of the WESM. Through the WESM, power generators will
be able to sell their electricity on the open market to distributors who in turn will have a
choice on which generators to source their electricity from.
The WESM is only the second of its kind in Asia next to Singapore. The WESM was
established specifically to create an efficient, competitive, transparent and reliable
market for the transaction of electricity in the Philippines. The vision of the WESM, is
for power generators to offer their output of electricity to buyers - no matter where
the demand of the electricity in the country is. In addition to this, power distribution
firms are required to source at least 10 percent of their electricity demand through
the WESM. This will provide power generators an opportunity to sell their electricity in
markets where they once had no access.
The Philippine electricity spot market is a positive signal to investors that the
Philippine Government is addressing some of the prevalent issues of transparency and
competitive pricing currently impacting the sector. At the same time, it provides Green Law: A Go-Signal for
alternatives to investors as they now have greater flexibility to sell their product in
the open market which impacts their returns. Investments
Privatization of NPC assets The Philippines is among the top

countries that harness and develop
In 2009, the Power Sector Assets and Liabilities Corporation (PSALM) surpassed its renewable energy resources, otherwise
goal of privatizing 70 percent of the power generating assets of the National Power known as “green energy.” It is already
Corporation. To date, PSALM has successfully privatized 81 percent (3,072 MW) of the second largest producer of geothermal
these assets and continues to auction off the remaining power plants. These auctions energy and leads southeast asia in the
provide investors with a direct method of participating in the Philippine power industry. development of wind power. The
The most recent auction was for the 246 MW Angat Power Plant which attracted six Department of Energy foresees that within
different bidders. Other plants scheduled to be auctioned off in 2010 are: this decade, up to 40 percent of the
country’s energy needs will be sourced
from renewable energy resources. To
Plant MW further develop green energy, Republic Act
Bacon-Manito 150 No. 9513 or the Renewable Energy Act
Bauang 235 of 2008 was passed. The law signals the
country’s commitment to green energy
Navotas 310
through the acceleration of the exploration
Iligan 1&2 114 and development of renewable energy
Sucat (decommissioned) 850 resources such as biomass, solar, wind,
hydro, geothermal and ocean energy
From 2011 to 2013, more plants are expected to be auctioned off. Among these are; sources, including hybrid systems.
Investors in the energy sector have praised

Plant MW the attractive investment regime ushered
in by the law. They cite the two most
Agus and Pulangi 982.10
important features of the Renewable
Malaya Power Barges 101, 102,103,104 650 Energy Act of 2008 as the feed-in tariff
Cebu Coal I &II, Cebu Diesel I 149 system and the package of tax and fiscal
incentives.
5 IBID

Independent Power Producer Administration (IPPAs)
Similar to the public auctions for the power generating assets, PSALM also has public
auctions that allow investors to administer and manage the contracted energy from
the Energy Conversion Agreements (ECAs) and the Power Purchase Agreements (PPAs)
that NPC entered into with the independent power producers. This process allows
investors to participate in the WESM without having to put up the generating assets
themselves. This alternative also allows investors to partake in the benefits of owning
generating stations when the contract expires. Among these benefits are:
controlling the fuel and its dispatch, trading and contracting of the plant but without
the maintenance costs or capital upgrades of actually owning the plant.
The last round of bidding for IPPAs was completed last 28 August 2009. The contracts
that were auctioned off were for the NPC capacities for the coal-fired Sual and Pagbilao
power plants. The next round of IPP contracts will include6:
Plant MW
San Roque 345
The Feed-In Tariff System and the Casecnan 140

Renewable Portfolio Standards Bakun 70
Benguet 30
The development and maintenance of
green energy resources are, in general, Ilijan Natural Gas Plant 1200
more capital extensive than the use of
traditional energy resources such as
coal, gas and oil. Investors are therefore Renewable Energy Act of 2008 (RA 9513)
cautious to commit to projects that
assure an acceptable return. The feed-in The Philippines continues to be in an enviable position to host some of the best
tariff system mandated by the law renewable energy resources. The Department of Energy has estimated the following
addresses this issue by obligating
renewable sources potential as follows:
electric power industry participants
to source electricity from Renewable
Energy (RE) generation at a guaranteed
Source MW
fixed price applicable for a for at least
12 years. Among the benefits that the Wind 76,600
renewable energy industry enjoys from Water 10,500
this system are:
Tidal 170,000
(1) Priority connections to the grid for
electricity generated from
emerging renewable energy According to the DOE, there have been 223 Service contracts awarded to firms that
resources such as wind, solar, have pursued power generation through Renewable Energy resources as of mid-2010. It
ocean, run-of-river, hydropower has been noted that even non-traditional companies which previously did not participate
and biomass power plants within in the power sector have indicated an interest to take advantage of the potential of the
the territory of the Philippines countries renewable energy sources.
(2) The priority purchase, transmission Whether a firm intends to participate in one of PSALM’s privatization auctions or valuing
of and payment for such electricity an asset, KPMG Manabat Sanagustin & Co., CPAs has a team that can help potential
by the grid system operators investors and incumbents alike make better decisions by providing an insightful and
differentiated point of view. KPMG has provided a broad spectrum of financial work for
Together with the Renewable Portfolio clients such as Meralco, Mitsubishi, Marubeni, Chevron, DMCI, FirstGen Holdings,
Standards which obligates electric Pan Asia Energy Holdings, Energy Development Corp and Suez Tractebel.
power industry participants such as
generators, distribution utilities or
suppliers to source or produce a
specified fraction of their electricity from
eligible renewable energy resources, the
feed-in tariff system provides a level of
assurance that investments in renewable
energy projects will be recovered.
6 PSALM Industry Prospectus 2010

Tax and Other Fiscal Incentives
The law also provides incentives to
The Renewable Energy Act of 2008 provides attractive tax incentives to renewable farmers engaged in the plantation of
energy developers (RE Developers) and to manufacturers, fabricators, and suppliers biomass resources. For a period of ten
of locally-produced renewable energy equipment and components (RE Commercialization (10) years after the effectivity of the law,
Proponents). The major tax and fiscal incentives are: all individuals and entities engaged in the
Incentive RE Developers RE Commercialization
plantation of crops and trees used as
Proponents biomass resources such as, but not
Income Tax Holiday (i) exemption for up to seven (7) exemption from national income
years from the start of tax on net income derived from limited to, jatropha, coconut, and
commercial operations; and the sale of renewable energy
equipment, machinery, parts and sugarcane, as certified by the
(ii) in the case of additional services for up to seven (7) years
investments in renewable energy starting from the date of
Department of Energy, are entitled to
resources, seven (70 years from recognition/accreditation by the
the start ofcommercial operations government.
duty-free importation and exemption
resulting from the new from value-added tax (VAT) on all types
investments;
of agricultural inputs, equipment and
(iii) maximum income tax holiday
period is twenty-one (21) years, machinery.
inclusive of the initial 7-year
income tax holiday for its new
and additional investments in a
specific renewable energy facility.
The investment regime cultivated by the
Renewable Energy Act of 2008 has
indeed piqued the interest of both local
Preferential Tax Rate preferential tax rate of 10% on none
taxable income and foreign investors. As of the middle
Tax Exemptions proceeds from the sale of carbon exemption from value-added tax
emission credits exempt from on all shipments necessary for of 2010, the Department of Energy has
any and all taxes. the manufacture and/or
fabrication of renewable energy
reportedly awarded at least 180
equipment and components. renewable energy service contracts.
Duty Exemption duty free importation for up to ten duty free importation of all
years on the importation of shipments necessary for the
machinery and equipment, and manufacture and/or fabrication of
materials and parts thereof, energy equipment and
including control and components
communication equipment.
upon the purchase of machinery, upon purchase of renewable
equipment, materials, and parts energy components from a
from a domestic manufacturer, domestic manufacturer,
entitlement to tax credits entitlement tax credit equivalent
equivalent to one hundred to one hundred percent (100%)
percent (100%) of the value of of the amount of the value-added
the value-added tax and custom tax (VAT) and customs duties
duties that would have been paid that would have been paid on the
on the renewable energy components, parts, and materials
machinery, equipment, materials had these items been imported
and parts had these items been
Tax Credit on Domestic Capital imported
Equipment and Services
Special Realty Tax Rates on realty and other taxes on civil None
Equipment and Machinery works, equipment, machinery,
and other improvements actually
and exclusively used for
renewable energy facilities
capped at one and a half percent
(1.5%) of their original cost less
accumulated normal depreciation
or net book value.
Net operating loss carry-over NOLCO during the first three (3) None
(NOLCO) years from the start of
commercial operation shall be
carried over as a deduction from
gross income for the next seven
(7) consecutive taxable years
immediately following the year of
such loss
Accelerated Depreciation for renewable energy projects None
which fail to receive an income
tax holiday before full operation,
plant, machinery and equipment
may be depreciated using a rate
not exceeding twice the rate
which would have been used had
the annual allowance been
computed in accordance with the
tax code and pertinent rules and
regulations
any of the following methods of

accelerated depreciation may be
adopted:
(i) declining balance method; and
(ii) sum-of-the years digit method.
Value-added tax zero-rated value-added tax on

(i) sale of fuel or power their transactions with local
generated from renewable suppliers of goods, properties
sources of energy subject to zero and services.
percent (0%) value-added tax
(ii) zero-rated value added tax on

purchases of local supply of
goods, properties and services
Cash Incentive of Renewable N/A

Energy Developers for entitlement to a cash generation-
Missionary Electrification based incentive per kilowatt-hour
rate generated, equivalent to fifty
percent (50%) of the universal
charge for power needed to
service missionary areas

Tax Perpectives:
Real Estate
I. Market update and outlook
REITS

The Real Estate Investment The most awaited Implementing Rules and Regulations (IRR) of Republic Act 9856, more
Trust Act of 2009 commonly known as the Real Estate Investment Trust (REIT) Law, was released by the
government in May 2010. A REIT is a stock corporation that primarily invests in income-
In December 2009, Republic Act No. producing real-estate assets like apartments, office buildings, warehouses and the like.
9856 (“The Real Estate Investment Trust It allows cross-border investments that will encourage strategic foreign investments in
Act of 2009” or the “REIT Law”) set the capital market.1
up the regulatory environment for the
creation of real estate investment trusts The draft IRR of the REIT Law provides that a REIT must have a minimum paid–up
(“REIT”) in the Philippines. capital of PhP300 million at the time of its registration. It must be a public company listed
at the Philippine Stock Exchange (PSE) and must have at least 1,000 public shareholders
The law expressly aims to use REITs to each owning at least 50 shares of any class of shares. The aggregate public shareholders
promote the development of the capital should own at least 30 percent of the outstanding capital stock of the company. A REIT
market and democratize wealth by entity is also required to distribute at least 90 percent of distributable income as
broadening the participation of Filipinos dividends to its investors.2
in the ownership of real estate in the
Philippines and to and develop For individual investors, REITs provide the opportunity to directly participate in the
infrastructure projects. ownership and financing of large-scale real estate projects at affordable rate of
investments without the disadvantages of illiquidity, high transaction and management
General Features of a REIT costs, as compared to traditional private real estate ownership. For property firms,
REITs is an avenue to raise additional capital through public listing of their income-
Under the law, a REIT must be organized generating properties, allowing them to free up more funds for their new development
as a stock corporation with a minimum projects.3
paid-up capital of three hundred million
pesos (Php300,000,000.00) which is The prospects for REITs look promising, as several property firms have already
formed principally for the purpose of expressed interest in the listing. Big players such as Ayala Land, Inc., Robinsons Land
owning income-generating real estate Corporation, SM Prime Holdings, Inc. and Megaworld Corporation have announced their
assets. There is no option to organize the plans to enter the new market. Industry sources added that Century Properties and
REIT as a trust. The law explicitly states Rockwell Land Corporation are also looking at REITs. According to PSE, 20 other firms
that a REIT, although designated as a are keen on listing apart from the large companies. This development is expected to
“trust”, does not have the same technical boost the real estate industry further.4
meaning as “trust” under existing laws
and regulations but is used for the sole
purpose of adopting the internationally 1 “Implementing Rules and Regulations of the Real Estate Investment Trust Act of 2009” – Securities and
accepted description of the these types Exchange Commission
2 “Implementing Rules and Regulations of the Real Estate Investment Trust Act of 2009” – Securities and
of investment vehicles. Exchange Commission
3 “REIT to boost development of RP’s property market” – Business Mirror, April 11, 2010
4 “Surge seen in REIT offerings as IRR due to be out in May” – Business Mirror, March 30, 2010

A. Office
An investor may participate in a REIT
Over the last decade, the main driver of the office market demand was the Business by acquiring its stock or derivatives of
Processing Outsourcing (BPO) industry. The industry accounts for approximately 60 to thereof (referred in the law as “investor
70 percent (60% to 70%) of the occupancy in the existing office space supply and is securities”). Non-Philippine citizens may
expected to take up roughly the same percentage in the upcoming stock.5 subscribe to a REIT’s stock as long as the
corporation maintains sufficient Filipino
Office space demand by BPO companies has led to the emergence of new commercial shareholding to comply with the foreign
and business districts, as well as a resurgence of some of the old Central Business ownership restrictions under Philippine
Districts (CBDs). Among these CBDs are the Alabang Business District (Filinvest law.
Corporate City, Madrigal Business Park, Northgate Cyberzone), Eastwood City in Libis,
Fort Bonifacio Global City, Mckinley Hill in Taguig City, Bay Area Development, Newport A REIT is required to be a public
City in Pasay City, Binondo, Araneta Center and the UP North Science and Technology company, must maintain its status as a
Park and Eton City, which are both located in Quezon City.6 listed company; and upon and after listing,
have at least one thousand (1,000) public
Major CBDs in Metro Manila shareholders each owning at least fifty (50)
shares of any class of shares who in the
aggregate own at least one-third (1/3) of
the outstanding capital stock of the REIT.
The law requires REITs to distribute

annually at least ninety percent (90%) of
its distributable income as dividends to its
shareholders not later than the last day of
the fifth (5th) month following the close of
the fiscal year of the REIT.
REITs are highly regulated and the law

provides various limitations on their
investment and commercial activities, the
mix of their investments, the composition
and compensation of their corporate offi-
cers and their selection and compensation
of their fund managers and property
managers.
Source: “Real Estate Industry Overview- CB Richard Ellis
Some BPO firms are also expanding outside Metro Manila. The most notable areas are
Metro Clark in the North and Metro Cebu in the South, which are already considered as
“established IT-BPO locations” by the Business Processing Association of the Philippines
(BPAP), Commission on Information Communications Technology (CICT) and the
Department of Trade and Industry. The three organizations have also announced this
year’s Top 10 Next Wave Cities for Outsourcing. On top of the list was Davao, followed
by Santa Rosa, Bacolod, Iloilo, Metro Cavite (Bacoor, Dasmarinas and Imus), Lipa,
Cagayan de Oro, Malolos, Baguio and Dumaguete. The cities were chosen based on the
availability of talent (40%); infrastructure (30%); cost (10%); and business environment
(20%).7
5 “Real Estate Industry Overview” – CB Richard Ellis

6 “Real Estate Industry Overview” – CB Richard Ellis
7 “Demand for BPO space seen rising” – Manila Times, April 16, 2010

Next Wave Cities for Property consultants expect the BPO industry to remain the primary driver of the
Outsourcing 2010 office market for 2010. Office space demand is expected to hit 400,000 square meters
(sqm) in 2010, up 36.5 percent from merely 293,000 sqm in 2009, following BPAP’s and
CICT’s anticipation of 25-30 percent growth in the BPO industry. The recent passage of
the REIT Law is seen to enable developers to raise funds for the construction of new
buildings to accommodate the demand for the office market.
B. Residential
Residential developments have evolved and expanded over the years. From the
traditional residential subdivisions (i.e., lots and house-and-lots), there are now the
residential condominiums (i.e., high-end and medium-rise), as well as residential leisure
developments (i.e., farm lots, beach resorts, golf and country clubs). The recent trend,
both in residential subdivisions and condominiums, is the offering of “themed”
developments such as Asian, American, Italian, and Mediterranean among others.
All these have been formed to address the preferences of buyers caused by income
concerns, lifestyle and exposure to the fashion in the developed countries.
The residential market has been on the upbeat after the 1997 Asian crisis, as manifested
by the increasing number of Licenses to Sell (LS) issued by the Housing and Land Use
Regulatory Board (HLURB). From merely 70,256 approved LS in 2000, the number
reached 220,756 in 2008, the highest number of issued LS recorded in eight years.
As of October 2009, LS issued totaled 163,171 units.
Such growth in the residential market
is attributed to the increased Overseas
Filipino Workers (OFW) count, Filipino-
Americans and Canada-based Filipinos
wanting to acquire properties either
Licenses to Sell Issued on Residential Projects (2000 to Jan-Oct 2009) for use (i.e., domicile, retirement nest,
temporary residence when visiting) or for
investment. There are also foreigners who
have Filipino spouses and expatriates, as
well as middle-aged investors seeking
to diversify their property investments.
250,000 Young professionals purchasing properties
for their parents or other family members
200,000
in the Philippines also contributed in the
growth.
150,000
For 2010, the demand for the residential
market is seen to stay afloat as a result of
100,000 continued OFW remittances, low interest
rates and the BPO industry.
50,000
OFW remittances remain to be strong,
0 as evidenced by the 2009 figures
2000 2001 2002 2003 2004 2005 2006 2007 2008 J an- Oc t released by the Bangko Sentral ng
2009 Pilipinas (BSP). OFW remittances reached
$17.3 billion, representing a 6 percent
increase year-on-year and the central
bank expects remittances to grow at the
same level for 2010. The Central Bank
also disclosed in a quarterly report that a
portion of the remittances of OFW families
used for house acquisitions improved to 15
percent from 11 percent in 4Q 2009.
Stable monetary policies by the BSP, as

well as low interest rates from
government home financing organizations
such as Pag-ibig, will sustain demand

for residential units with affordable monthly amortizations. Statistics from the BSP showed real estate loans for residential purposes
improved from PhP153.9 billion in 2008 to PhP162.6 in 2009 (5.7% y-o-y).
Meanwhile, BPO companies in the country have provided a greater number of higher-paying job opportunities in the market. Filipinos
currently employed in these BPOs generally enjoy a higher-than-average salary that translates into a larger disposable income, which
can then be allocated for the purchase of a residential unit.
C. Hospitality
Latest statistics from the Department of Tourism (DOT) showed that total tourist arrivals in the country’s top 14 destinations reached
8.95 million, representing a 14 percent increase from the 7.84 million visitors in 2008. The country’s key destinations include Cebu,
Camarines Sur, Metro Manila, Baguio, Davao, Boracay Island, Cagayan de Oro, Zambales, Bohol, Puerto Princessa, Camiguin, Cagayan
Valley, Negros Oriental and Ilocos Norte.
Among the key destinations, Cebu posted the highest number of tourist volume at 1.62 million. This is brought about by the
increased international and domestic flights to Cebu, as well as the additional supply of accommodation in the area which translated
to approximately 804 new rooms. Attractive tour packages in Cebu and its nearby destinations also aided the tourist growth.
Following Cebu was Camarines Sur (“CamSur”) with 1.57 million arrivals. It should be noted that although CamSur ranked second in
having the most visitor arrivals, it recorded the highest year-on-year growth at 117 percent. CamSur hosted several international and
local events during the year, including the First Aqua Fest Celebrity Challenge, Ironman 70.3 Triathlon, International Dragon Boat
Competition, and Bagasbas Summer Surf among others.
The DOT expects the tourist arrivals in the country’s key destinations to increase by 15 percent in 2010.
D. Retail
The retail sector, which primarily covers consumer spending, is seen to stay afloat fueled by three stable forces: the OFW
remittances, BPO and tourism. After experiencing a slight slowdown in 2009 due to the global economic turmoil, coupled with effects
brought about by the typhoons Ondoy and Pepeng, industry experts forecast the sector to pull through in 2010, following expectations
of economic recovery worldwide.
Several retail developers have laid-out their capital expenditure plans. SM Prime Holdings, Inc. has allotted PhP4 billion this year to
build new malls in Calamba and San Pablo in the province of Laguna, in Tarlac, in Novaliches and in Masinag, Antipolo. Robinsons Land
Corporation, on the other hand, will put up three malls in locations such as the former Magnolia compound in Quezon City, Palawan and
Calasiao, Pangasinan. Meanwhile, Shang Properties, Inc. is building world-class shopping and leisure development in Ortigas that will
mainly comprise of high-end and iconic brands.
Case study
Manabat Sanagustin & Co., CPAs (MS&C) was engaged by an international organization to provide advisory services in
relation to the disposal of the institution’s real estate assets. The organization, through donations, owns several properties
located in Metro Manila and the rest of the Philippines. In line with its effort to sustain the improvement of its operations and
to reach an even wider sector of the Philippine society, it decided to liquidate several of its non-core assets to raise cash.
The first asset was a prime property located at the heart of Metro Manila along a national highway. The services provided by
MS&C to the organization covered assistance in the evaluation of options for the property (i.e, sale, and joint venture), the
execution of a bidding process to get the best possible offer and deal, the awarding of the property to the highest-rated bidder
and the negotiation afterward. The property was disposed early this year and MS&C is now working on the remaining
properties of the organization

Infrastructure: Roads and Highways
Interconnections among rural and urban areas to major ports and hubs play a vital role
in boosting a country’s economic activity. In 2007, the National Government, through its
Comprehensive and Integrated Infrastructure Program (CIIP), identified key transport-
related infrastructure projects to connect rural areas to ports and nearby metropolitan
areas. The CIIP contains a list of infrastructure projects to meet the requirements set
forth in the Medium-Term Philippine Development Plan (MTPDP).
To date, some of the large projects under the CIIP that have started include: Subic-Clark-
Tarlac Expressway (SCTEx), Stage-2 of Skyway from Bicutan to Alabang, North Luzon
Expressway (NLEx) exit from Mindanao Avenue, and South Luzon Expressway (SLEx)
Rehabilitation and Extension. All of the projects mentioned were formed via Public-
Private-Partnerships (PPPs), which is a common mode used by the government to
implement large infrastructure projects.
Some infrastructure projects slated for bid-out or construction were delayed. As an

example, the Philippine National Construction Corporation (PNCC) has decided to delay
the auction of its stake in South Luzon Tollways Corp. and Manila Toll Expressway
Systems, the contractor and operator of South Luzon Expressway, and let the next
administration decide on the planned divestiture.
Infrastructure Spending
For 2010, the government decreased its budget for fiscal stimulus. The National
Government allocated a total of PhP210.7 billion for public sector infrastructure. This
amount is broken down to PhP134 billion to be spent by the National Government,
PhP53.1 billion by the local government and PhP24 billion by government corporations.
It is estimated that a total of PhP50.0 billion will be required for the rehabilitation and
reconstruction program related to typhoons Ondoy and Pepeng that shall be sourced
through loans from the Japan International Cooperation Agency, World Bank, Official
de Credito and Deutsche Bank.
Infrastructure Projects
Subic-Clark-Tarlac Expressway (SCTEx) – SCTEX is currently considered as the longest

expressway in the country, with a 93.77-kilometer stretch covering major development
areas of Central Luzon. The project was implemented by the Bases Conversion
Development Authority (BCDA) and commenced its commercial operations on
28 April 2008. The construction was funded through a loan from Japan Bank for
International Cooperation (JBIC) worth PhP28.0 billion. Currently, the interim operator
of SCTEx is Tollways Management Corporation, a 46 percent owned company of Metro
Pacific Tollways Corporation.
Earlier in 2010, BCDA conducted an auction for the operations and management of
SCTEx. Under the bid contract terms of BCDA, the winning bidder must bear “the
operational funding requirements for the management, operations and maintenance
of the SCTEx,” which includes the periodic maintenance, special works and insurance.
The winning bidder shall also provide management services, toll collection, traffic safety
and security management services, toll road maintenance and other related services.
Further, a semiannual lease or concession fee equivalent to the JBIC loan repayment and
finance charges, or 20% of the audited gross profit, whichever is higher, is required by
the BCDA.
BCDA’s requirements were unrealistic and the concessionaire may have to subsidize and
incur losses.

SLEx Rehabilitation and Extension – This PhP8.5 billion project covers the rehabilitation
of Alabang Viaduct, the widening of the Alabang to Calamba section of the SLEx, and the
road extension from Calamba to Sto. Tomas, Batangas. Under the 30-year Supplemental
Toll Operation Agreement signed in 2006, South Luzon Tollways won the right to
rehabilitate, expand, operate and maintain the Alabang to Calamba stretch of SLEx.
South Luzon Tollways Corp. (SLTC) is a joint venture between the PNCC and MTD Manila
Expressways, Inc. of Malaysia. The Malaysians owns 80 percent of SLTC, while 20
percent is held by PNCC. Manila Toll Expressway System, Inc. (MATES) was formed by
the concessionaires to undertake the operations and maintenance of SLEx.
PNCC plans to sell its 20 percent stake in SLTC, which it will package with its 40
percent stake in MATES. PNCC has already obtained approval from privatization officials
regarding the sale of its stake. It was reported that this will be used to pay the close to
PhP5.0 billion in debts owed to the National Government for building the link between
Susana Heights interchange to the southern end of Daang Hari in Cavite, and also to help
ease the budget deficit.
North Luzon Expressway (Mindanao Avenue Exit) – This project covers a 2.7-kilometer,
2x2 lane road, a two-way service road and a cloverleaf interchange north of Balintawak
Plaza that links C5 road in Quezon City to NLEx. This project, also known as Segment 8.1,
aims to decongest the traffic in Metro Manila as this may serve as an alternate route for
motorists going north to Bulacan and Pampanga. The total cost of the project according
to the CIIP amounts to PhP3.0 billion.
Metro Pacific Tollways currently controls the North Luzon Expressway concession
through its acquisition of Manila North Tollways Corporation. Metro Pacific also has
segments 9 and 10 in their pipeline of projects, which projects aim to connect MacArthur
Highway in Valenzuela and Manila’s Port Area to NLEx. The project cost was estimated
to be PhP10.0 billion over the course of two to two-and-a-half years. Segment 9 covers
a three-kilometer, four-lane expressway, while Segment 10 is a five-kilometer, four-lane
elevated road.
North Luzon East Expressway (NLEE) – This PhP13.6 billion project aims to connect
Commonwealth Avenue in Quezon City to Cabanatuan in Nueva Ecija. The NLEE project
has two phases. Phase 1 covers the construction of an 18.9-kilometer road from Quezon
City to Norzagaray in Bulacan, while Phase 2 covers the construction of a 36.9-kilometer
road from Norzagaray to Nueva Ecija. The project was estimated to be completed within
36 to 38 months.
The winning proponent for the NLEE project is Ausphil Tollways Corp. Banco de Oro has
been appointed lead arranger for the financing of the project and will secure 70 percent
of the total financing needs. The remaining 30 percent shall be sourced from equity
capital funds.
In a disclosure to the Philippine Stock Exchange, San Miguel Corporation was in talks
with Ausphil Tollways Corp. to acquire the latter’s shares. However, despite the buyout,
current management wants to retain the management of Ausphil for the next two years
to ensure that the implementation would be based on their concept.
Tarlac-La Union Expressway (TLEx) – This project covers the construction of an

88.5-kilometer expressway traversing Tarlac, Pangasinan and La Union provinces. The
Philippine Infrastructure Development Corporation (PDIC), a joint venture between San
Miguel Corporation and DMCI Holdings, Inc., is the concessionaire for the Tarlac-La Union
Expressway project costing PhP19.0 billion. The government promised PhP2.9 billion
in subsidy for the construction while BDO Capital and Investment was reported to have
raised PhP10.0 billion.

DMCI Holdings, Inc. and San Miguel announced that they will infuse its PhP1.5 billion
share in the cost to commence the construction of the project in the second phase, while
the BDO loans shall be disbursed upon completing the right-of-way acquisitions. As of
March 2010, the portion ready for construction covers 60 percent of the
50-kilometer Phase 1, which is expected to cost as much as PhP4.0 billion
Major Players in Transport Infrastructure
Summary of Transport Projects

San Miguel Corporation Metro Pacific Tollways Corp.
Awarded Projects TLEx NLEx

Skyway Stage II (minority interest)
SCTEx (interim O&M )
Prospective Projects (for Bidding) SCTEx (BCDA bidding) SCTEx (BCDA bidding)
SLEx (PNCC's 20% stake in SLTC) SLEx (PNCC's 20% stake in SLTC)
NLEE (sale by Ausphil)
MRT-7 (sale by Universal LRT)
Private sector participants San Miguel Corporation and Metro Pacific Tollways
may be considered as two of the most active in terms of transport infrastructure
projects. For Metro Pacific, their master plan is to be present on both north and
south sides of Metro Manila and connect these ends. One of their projects in the
pipeline is to construct a 13-kilometer elevated four-lane expressway that will
connect both NLEx and SLEx. To date, Metro Pacific is in line with its objective, as
it currently holds the concession for NLEx and is also on the lookout for the possible
acquisition of stakes in the SLEx concessionaire.
San Miguel Corporation is more active in terms of projects up north. San Miguel,
along with its joint venture partner DMCI, are on the move to commence the
construction of TLEx. San Miguel had secured the option to increase its stake in
PIDC to 51% from the current 35 percent. In addition, San Miguel is in talks with
Ausphil, the concessionaire for NLEE, to purchase the latter’s majority stake. San
Miguel has signed a memorandum of understanding with Universal LRT Corp. for a
majority stake in the MRT-7 project.
Market Outlook
The Philippines has been active in transport infrastructure projects. Key projects
identified by the government such as the TLEx, NLEE, and MRT-7 projects have
already been awarded to their respective proponents. However, the major hurdle
for the fulfillment of these projects is funding. For this year, the stimulus package
has decreased to PhP134.0 billion from the previously projected PhP330.0 billion
for 2010. This translates to a slowdown in the projected spending for transport
infrastructure projects.
Private sector participation is seen to increase should the government opt to

continue on cutting down its budget deficit. Large conglomerates such as San
Miguel and Metro Pacific may continue to be present during the biddings for several
government projects, as they have the capacity to undertake such capital-intensive
projects. However, government subsidy shall remain as one of the most crucial
issues for the bidders. As an example, the SCTEx bidding wherein the winning
proponent was required to pay a lease equivalent to the greater of the debt

servicing or the 20 percent of the gross audited revenues, was the primary
concern of the Metro Pacific group. This was of concern as the current traffic
situation at SCTEx may not be enough to provide revenues to pay the lease.
Government subsidy may be one of the solutions in order to entice bidders to
undertake such projects. Another example is the TLEx PhP2.9 billion government
subsidy which has yet to be provided. PIDC needs to infuse more than the amount
required in order to commence construction.
An incoming administration presented gray areas in terms of the policy directives

for transport projects. As an example, the PNCC has passed the decision on the
planned sale of their stake in SLTC, concessionaire of SLEx, to the next adminis-
tration. Further, it is possible that the succeeding administration will provide less
priority to transport infrastructure projects and focus more on social infrastructure
projects.
Given the current developments in the industry, prospective clients can tap
Manabat Sanagustin & Co., CPAs (MS&C) to perform the following services:
Valuation and Financial Due Diligence – It is seen that a number of

concessionaires shall opt to sell their stakes in infrastructure projects to further
expand their funding source or to cut down the budget deficit, in the case of
government instrumentalities. Examples of these would be PNCC, which plans
to sell their stake in SLTC; Ausphil, winning proponent for NLEE that plans to
divest 67 percent; and, Universal LRT, for its stake in the MRT-7 project. MS & C
may advise clients in the transport infrastructure sector, specifically in terms of
providing these clients with a starting point in negotiating for the selling or
purchase price of a certain project or venture. Further, the Firm can advise clients
and look for certain pitfalls and synergies present in a given transaction.
Commercial Due Diligence – Investors need to assess the viability of a certain

project. The Firm can perform commercial due diligence to properly scope the
geographical characteristics, industry status and competitive landscape, and
other major issues facing proponents of transport projects.
Financial and Economic Modeling – Estimating how much capital is needed

and what returns can be generated from a specific transport project is important
for a project proponent. MS & C can advise on, and even craft a financial and
economic model that can illustrate the upside, breakeven and downside aspects
of a specific transport project.
Structuring – For transport infrastructure projects, it is common practice to

venture with a partner to undertake capital intensive engagements. How much
each is able to put on the table, and who gets what, are crucial considerations
that will impact ownership and remuneration structures for a consortium. The
Firm can advise clients on the optimal structure for companies, as well as on
consortium planning to bid for an infrastructure project.

Tax Perpectives:
Healthcare
Updates on In compliance with Administrative Order (AO) 205-0029, otherwise known as the Revised
Healthcare Industry Rules and Regulations Governing the Registration, Licensure and Operation of Hospitals
and other Health Facilities, hospitals and other health facilities are classified under two
The latest development in the healthcare main categories, namely:
industry is Republic Act (RA) No. 9502,
otherwise known as the “Universally 1. General Hospitals provide services for all types of deformity, disease, illness
Accessible Cheaper and Quality or injury
Medicines Act of 2008”. RA 9502
became effective on 04 July 2008. 2. Special Hospitals are primarily engaged in providing special clinical care and
management.
RA 9502, however, does not grant
incentives or impose taxes in the Service capability
healthcare industry.
1. Level 1 – These are emergency hospitals that provide initial clinical care and
The underlying purpose of RA 9502 is management to patients requiring immediate treatment, as well as rampant
shown in the said law’s declaration of diseases in the locality. The services that they can provide are general medicine,
policy and as reiterated in its pediatrics and non-surgical gynecology and minor surgery. They may provide
implementing rules and regulations ancillary services such as primary clinical laboratory, first level radiology and
(IRR) issued jointly by the Department pharmacy. Hospitals under this level provide nursing care for patients who
of Health (DOH), Department of Trade require minimal category of supervised care for twenty-four (24) hours or longer.
and Industry, Intellectual Property
Office (IPO), and the Bureau of Food 2. Level 2 – Hospitals under this level are non-departmentalized hospitals that provide
and Drugs (i.e., Joint DOH-DIT-IPO-BFAD clinical care and management on prevalent diseases in the locality. Clinical services
Administrative Order No. 2008-01). include general medicine, pediatrics, obstetrics and gynecology, surgery and
anesthesia. They may provide appropriate administrative and ancillary services such
It is the policy of the State to protect as secondary clinical laboratory, first level radiology and pharmacy. They are given
public health. When the public interest the capability to provide Level 1 nursing care as well as intermediate, moderate and
or circumstances of extreme urgency partial category of supervised care for twenty-four (24) hours or longer.
so require, the State shall adopt
appropriate measures to promote and 3. Level 3 – These are departmentalized hospitals that provide clinical care and
ensure access to affordable quality drugs management of prevalent diseases in the locality, as well as particular forms of
and medicines for all. Pursuant to the treatment, surgical procedure and intensive care. They can provide clinical services
attainment of this general policy, an in Level 2 hospitals, as well as specialty care. They may provide appropriate
effective competition policy in the supply administrative and ancillary services such as tertiary clinical laboratory, second level
and demand of quality affordable drugs radiology and pharmacy. Level 3 hospitals can provide nursing care in Level 2
and medicines is recognized by the State hospitals, as well as total and intensive care.
as a primary instrument. In the event
that full competition is not effective, the
State recognizes as a reserve instrument
the regulation of prices of drugs and
medicines as one of the means to also
promote and ensure access to quality
affordable medicines.
continued on next page

4. Level 4 – These are teaching and training hospitals, with at least one Accredited One of the main features of RA 9502 is
Residency Training Program for Physicians, which provide clinical care and management the power granted to the President of the
of the prevalent diseases in the locality, as well as specialized and sub-specialized forms Philippines, upon recommendation of the
of treatment, surgical and intensive care. They can provide clinical services and nursing DOH Secretary, to impose a maximum
care in Level 3 hospitals as well as continuous and highly specialized care. They may retail price (MRP) over any or all drugs
provide administrative and ancillary services such as tertiary clinical laboratory, third level and medicines. The power to impose
radiology and pharmacy. the MRP shall be exercised within such
period of time as the situation may
According to the Department of Health (DOH), there were 1,921 hospitals by the warrant as determined by the President
end of 2006, 1,202 of which were private hospitals, while the remaining 719 were public of the Philippines. The MRP shall be
hospitals. According to the Philippine Health Insurance (“PhilHealth”), eight out of ten of construed as the imposition of maximum
the hospitals in the Philippines licensed by the DOH are PhilHealth-accredited. prices at all levels of the supply chains
including but not limited to the
As of 2006, the Philippines totaled 93,180 hospital beds, 51 percent of which belong to manufacturer’s price, trader’s price,
the public hospitals. The average public hospital had 67 beds in 2006, while the average distributor’s price, wholesaler’s prices,
private hospital had 38 for the same period. and retailer’s price. For drugs and
medicines with MRPs, senior citizens’
Outpatient care in urban areas is mainly provided by public hospitals, although some discounts and discounts for people with
private areas also specialize in providing primary care. In rural areas, primary healthcare disabilities shall continue to be honored.
services are of basic standard due to the lack of investment and infrastructure.
The list of drugs and medicines that are
Market Outlook subject to price regulation shall include:
According to the Economist Intelligence Unit (EIU), annual per capital healthcare a. All drugs and medicines indicated for
spending in the Philippines was pegged at USD64, which was considered low. Despite treatment of chronic illnesses and life
being higher by 3 percent and 64 percent versus in Indonesia and Vietnam respectively threatening conditions, such as, but not
that year, the Philippine annual per capita healthcare spending was below those of limited to:
Singapore (USD1,414), Malaysia (USD298) and Thailand (USD126).
• endocrine disorders,
Presented below is the table comparing Philippine healthcare spending at an e.g., diabetes mellitus
international level.
. • gastrointestinal disorders,
e.g., peptic ulcer
• urologic disorders,
e.g., benign prostatic hyperplasia (BPH)
• cardiovascular diseases,
e.g., hypertension
• pulmonary diseases,
e.g., pulmonary tuberculosis
(PTB), asthma
The above statements and figures imply that most Filipinos have little or no access
• auto-immune diseases,
to healthcare services. In line with this, the government is seen to respond to the
e.g., systemic lupus
increasing need to improve healthcare coverage, though efforts may be limited during the
erythematosus (SLE)
early years of the forecast period (2010 to 2014) due to weakness in public finances (the
budget deficit increased by more or less 300 percent, from 0.9 percent of GDP in 2008 to
• skin diseases, e.g., psoriasis
3.9 percent in 2009). The demand for healthcare is forecasted to rise due to several
factors such as increasing life expectancy, ageing of the country’s population and the
• neuro-psychiatric disorders
growth of the urban population.
• other infectious diseases,
e.g., human immunodeficiency
virus-acquired immune deficiency
syndrome (HIV-AIDS)
• other conditions such as organ

transplants and neoplasm.

b. Drugs and medicines indicated for Presented below are the key healthcare indicators in the Philippines
prevention of diseases, e.g., vaccines,
immunoglobulin, anti-sera;
c. Drugs and medicines indicated for

prevention of pregnancy, e.g., oral contra-
ceptives;
d. Anesthetic agents;
e. Intravenous fluids;
f. Drugs and medicines that are included

in the Philippine National Drug Formulary
(PNDF) Essential Drug List; and
g. All other drugs and medicines which,

from time to time, the DOH Secretary
determines to be in need of price regula- Trends in the hospital industry
tion.
Government regulation
Upon application or motu proprio when During the past twelve months, there have been efforts from the government to
the public interest so required and after regulate both public and private hospitals. In July 2009, Senator Miriam Defensor
proper determination, the DOH Secretary Santiago filed Senate Bill 3292, or the Hospital Price Disclosure Act, which requires
may order the inclusion of drugs and both public and private hospitals to post at admission areas the prices of medicines
medicines to the list subject of price and medical procedures. As of 1 December 2009, the said bill was consolidated/
regulation. submitted in the Committee Report.
Upon application or motu proprio when On 22 September 2009, the government saw the need to regulate private hospitals by
the public interest so required, the DOH legislation due to the decision of the Private Hospitals Association of the Philippines
Secretary shall have the power to deter- (PHAP) to increase fees in line with the implementation of the Maximum Drug Retail
mine the MRPs of drugs and medicines Price (MDRP) under the Cheaper Medicines Act, which halved the prices of twenty-one
which shall be recommended to the (21) commonly-used medicines. Malacañang called for continuous dialogue among the
President of the Philippines for approval. government, private sector and other stakeholders until concerns are resolved.
In recommending the MRP, RA 9502
mandates the DOH Secretary to consider In October 2009, The Department of Health (DOH) mulled whether to require hospitals
the following factors: to comply with Administrative Order (AO) 21 (signed September 2008), which bans
the use of mercury-containing devices, prior to renewing their license to operate.
a. Retail prices of drugs and medicines Subsequently, in February 2010, the DOH stated that they will be recommending the
that are subject to regulation in the Philip- ban of importation of mercury products and promote and disseminate AO 21 to local
pines and in other countries; government units (LGUs) responsible for managing health units and facilities.
b. The supply available in the market; Accreditation and Certification

To ensure the quality of hospital services, hospitals may opt to have their services and
c. The cost to the manufacturer, im- systems reviewed by local and international accrediting bodies, and subsequently gain
porter, trader, distributor, wholesaler or certification.
retailer of the following, but not limited
to: Two hospitals in the Philippines gained accreditation from internationally-recognized
accrediting bodies during the last two quarters of 2009. First was the Philippine
• The exchange rate of the peso to the General Hospital (PGH), which received its ISO 9001: 2008 certificate on 22 July 2009.
foreign currency with which the drug The ISO certificate indicates that PGH has complied with internationally-accepted
or any of its component, ingredient or quality management system standards. The national university hospital is the first
raw material was paid for; Philippine public facility to secure the certification
• Any change in the amortization cost of

machinery brought about byany change
in the exchange rate of the peso to
the foreign currency with which the
machinery was bought through credit
facilities;

and also the first of its category as national university hospital and premier tertiary • Any change in the cost of
referral center to become ISO 9001: 2008-certified. Second was the Chong Hua labor brought about by a
Hospital which obtained its accreditation from the Joint Commission International change in minimum wage; or
(“JCI”), a worldwide voluntary accreditation body that seeks to ensure the quality of
hospital services. JCI’s standard focus on areas that directly impact patient care, • Any change in the cost of
which include access to care, assessment of patients, infection control, patient and transporting or distributing
family rights, and education. Standards also address facility management and safety, the medicines to the area of
staff qualifications, quality improvement, organizational leadership and management destination
of information.
d. Such other factors or conditions which
In January 2010, PhilHealth announced that they are now offering three-year will aid in arriving at a just and reasonable
accreditations instead of undergoing an annual process. A hospital that applies for maximum price - In this regard, the IRR
accreditation shall determine its level of compliance with Philhealth Benchbook provides that these factors or conditions
Standards by conducting a self-assessment of its organization, according to Philhealth shall include the following:
Circular 50 series of 2009. PhilHealth standards address seven (7) critical areas in
improving quality hospital service, which include the following: patient rights and • marketing costs (per drug and
organizational ethics, patient care, leadership and management, human resource total global costs)
management, information management, safe practice and environment and
improving performance. • research costs (local and
global per drug)
Expansions and Acquisitions
The hospital industry was marked with various expansion efforts by both hospitals and • promotion costs
investors whose initiatives were geared toward the provision of quality service to the
public. Expansion efforts seen in 2009 and the earlier months of 2010 include • advertising costs
expansion in terms of facilities, infrastructure and acquisition.
• incentives and discounts
Expansion in terms of facilities
During 2009, three (3) hospitals introduced their respective new facilities. First was • taxes and other fees, impost, duties
the National Kidney and Transplant Institute (NKTI) with the launching last April 2009 of other changes imposed by competent
the first fully-automated lab in the Philippines and the first setup of its kind in Asia Pacific, authority
with capabilities of automatically assessing thousands of samples each day for
different diseases and conditions such as cholesterol, Human Immunodeficiency • other analogous cases.
Virus (HIV), Hepatitis C, biomarkers for cancer and heart disease.
In order that the affordable price of
Second was the Manila Doctor’s Hospital (“MDH”) with the launching of its new drugs and medicines from different
cardiovascular facility in May 2009. The said facility is equipped with the Artis Zee manufacturers, importers, traders,
Biplane System from Siemens, a catheterization laboratory system that offers advanced distributors, wholesalers, or retailers shall
imaging solutions for interventional cardiology and radiology and could also be used be made available to the public, the DOH
in various applications of neurology and pediatrics. The said facility expanded MDH’s Secretary shall have such approved MRP
patient services to include Coronary Angiography, Coronary Angioplasty, Hemodynamic of drugs and medicines published in
Studies, Pacemaker Insertion, ICD Insertion, Peripheral Angiography, 4 Vessel papers of general circulation and also
Angiography, Chemoembolization, Pulmonary Valvoloplasty, Atrial Systectomy and Vena posted in the internet. The IRR requires
Cava Filter Insertion. that all wholesalers, manufacturers,
distributors, importers, or traders shall
Third was the St. Luke’s Medical Center’s Center for Quality and Patient Safety in June have a copy of the order of the President
2009, which is committed to implementing, sustaining and improving the hospital’s of the Philippines and provide the same
quality and safety objectives, as well as introduce initiatives and projects that aim to to their clients and customers that
prevent or minimize, if not eliminate, the incidents and errors leading to patient harm. transact with them.
Expansion in terms of infrastructure Upon effectivity of the MRP, no retailer

The St. Luke’s Medical Center, Inc. opened its new hospital facility in Fort Bonifacio shall sell drugs and medicines at a retail
Global City, Taguig. Construction started in January 2007 and was operational in price exceeding the MRP approved by
January 2010. the President of the Philippines. In
addition, the IRR states that all drug
outlets are required to post in a
conspicuous area within their premises
a clear copy of the MRP order. The drug
outlets shall always maintain a copy of
the MRP order to be easily accessible
and readable to the consuming public and
shall update it regularly as the situation
may warrant.

Consequently, on 27 July 2009, the
President of the Philippines issued
Executive Order (EO) No. 821, prescrib-
ing the MRPs for selected drugs and
medicines that address diseases that
account for the leading causes of
morbidity and mortality. The EO shows
a list of active ingredient/molecule with
the dosage strength and form. The list
covers the
following active ingredients/molecules:
• amlodipine (including its S-isomer and

all salt form); The Davao Doctors Hospital, following the entry of the Metro Pacific Investment Corp.
(MPIC), started drafting its 10-year expansion plan in July 2009. The said expansion plan
• atorvastatin is to be made in lieu of the rising room rates, reaching beyond 80% since MPIC bought
34 percent of equity of the said hospital .
• azithromycin and all its salt form
Expansion in terms of acquisitions
• cytarabine The Metro Pacific Group signed a long-term contract with the Roman Catholic
Archdiocese of Manila to manage Cardinal Santos Medical Center. The company said
• doxorubicin and all its salt form it was still open to acquiring other hospitals .
Per EO 821, the MRP shall be imposed In April 2010, The Medical City (TMC) assumed management and operations of the Great
in all retail outlets, public or private, Saviour International Hospital in Molo, Iloilo City and the Global Medical Network and will
including drugstores, hospitals and subsequently proceed to a full acquisition of the said hospitals before the year-end. TMC
hospital pharmacies, health maintenance also acquired sister sites of the two hospitals in Luzon which includes the Mercedes
organizations, convenience stores and Medical Center in Pampanga and a network of outpatient clinics in Dagupan, Olongapo
supermarkets and the like. and Cavite. The acquisition brings the number of TMC sites to 18.
Other features of RA 9502 include Medical Tourism
among other things the grant of power
to the DOH Secretary to implement: In 2006, President Gloria Macapagal-Arroyo (PGMA) started promoting the Philippines
as a medical tourism and retirement haven through the issuance of Executive Order 372,
• the fair price of drugs and medicines which is intended to improve the Philippines’ communication industry, logistics, health
for purposes of public health and wellness. The Philippines remains a minor player, compared to Thailand, Malaysia
insurance and government and Singapore; however, the country is poised to become a USD3.0-billion industry by
procurement based onthe order of the the year 2015. Currently, there are forty-four (44) hospitals and health facilities in Central
President of the Philippines imposing Philippines that are accredited for medical tourism by the DOH and the Department of
the MRPs Tourism (DOT). Example of such is the George Dewey Medical and Wellness Center in
Subic Bay Freeport. The said wellness center is a 100-bed tertiary hospital owned and
• any other measures that the operated by the George Dewey Medical College, Incorporated. Another example is St.
government may avail of to Lukes Medical Center, located at the Fort Bonifacio Global City, Taguig, which has a 600-
effectively reduce the cost of drugs bed capacity and is expected to boost medical tourism in the country.
and medicines. These shall include
but not be limited to competitive In recent years, not only has the Philippine healthcare industry experienced substantial
bidding, price volume negotiations, growth, it has also undergone various degrees of corporate, operational and financial
and other appropriate mechanisms makeovers. MS&C right now is in a good position to leverage its project experience,
that influence supply, demand and resources, skills and network to be able to service clients in the sector that are on an
expenditures on drugs and medicines. acquisition or expansion mode. The Firm will be of valuable assistance to industry
players on the lookout for value-adding opportunities or instances that will contribute to
Another feature of RA 9502 is the grant the achievement of specific synergies. Throughout the M&A process, the Firm can lend
by the Director General of the IPO of a a hand by providing valuable inputs covering strategic investor or target search,
compulsory license under certain valuations, financial and tax due diligence procedures, business process improvement
circumstances. The compulsory license and audit.
is a license to exploit a patented
invention without the permission of the
patent holder, either by manufacture or
through parallel importation.

Setting-up a Presence
in the Philippines
In this Chapter:
• Forms of Businesses
• Investment Incentives
• Tax Incentives to Encourage REIT
• Work Regulations
• Visas and Work Permits
• Statutory Holidays
• Estimated Cost of Doing Business

Forms of Businesses
Foreign investment in the Philippines comes in the form of subsidiaries, branch offices, and representative offices.
The Foreign Investment Negative List may limit the form of business in which foreign investors may engage. Further, there are certain
minimum paid-in capital requirements depending on the type of entity established, as well as minimum requirements in the number of
shareholders, board members and local representation.
Representative offices are not allowed to engage in any profit-making business activities and are limited to performing promotional
and liaison functions only.
Investors may set up a presence in the Philippines by incorporating a Philippine legal entity as a subsidiary or to open a business
office such as a branch offices or representative office. Whether an investor will set up a subsidiary or elects to open a branch or
representative office, it will need to register with the Philippine Securities and Exchange Commission and with various
government offices.
Phase I. Securing Securities and Exchange Commission (SEC) approval of the Articles of Incorporation and By-laws
1. Preparation and drafting of documents to be submitted to the SEC such as the Articles of Incorporation and By-laws
2. Submission and filing of documents with the SEC
3. Necessary appearances and representations with the SEC to facilitate the approval of the articles of incorporation and by-laws
4. Submission of periodic progress reports to inform the company of its status
5. Preparation and drafting of other documents that may be requested by the SEC relative to the approval of the articles of
incorporation and by-laws
Phase II. Post – SEC Registration with Other Government Agencies
1. Registration with the Bureau of Internal Revenue (BIR) for the purpose of obtaining the corporation’s Taxpayer’s Identification
Number (TIN) and a Tax Withholding Agent, and registering its Books of Accounts
2. Registration with the Local Government Unit (LGU) in order to obtain the following:
a. Mayor’s permit and business license
b. Community tax certificate
c. Public liability insurance/ comprehensive general liability insurance of the office.
d. Barangay clearance.

3. Registration with the Social Security System (SSS) and the Pag-ibig Fund (if there are already any employees on board) so as to
comply with the Philippine social security laws, which require all employers and their employees to be registered with the systems
and to remit the proper contributions.
Forms of Businesses
Subsidiary. Investors may set up a presence in the Philippines by incorporating a Philippine legal entity as a subsidiary or to open a
business office such as a branch offices or representative office.
If the investor chooses not to incorporate a separate Philippine legal entity, it may set up under various options:
Branch Office - carries out the business activities of the head office of a foreign corporation. It is thus considered as a foreign
corporation organized and existing under foreign laws. Its income is derived from the host country.
A branch office is required to put up a minimum paid up capital of US$200,000.00, which can be reduced to US$100,000.00 if (a)
activity involves advanced technology, or (b) company employs at least 50 direct employees. Registration with the SEC is mandatory.
Representative Office - a foreign corporation organized and existing under foreign laws. It is fully subsidized by its head office and does
not derive income from the host country. It is created to undertake such activities as information dissemination, acts as a
communication center, promote company products, and serves as quality control of products for export for the parent company.
The initial minimum inward remittance of US$30,000.00 is required to cover its operating expenses and must be registered with the
SEC.
Regional or Area Headquarters (RHQ) - are offices whose purpose is to act as an administrative branch of a multinational company
engaged in international trade which principally serves as a supervision, communications and coordination center for its subsidiaries,
branches or affiliates in the Asia-Pacific Region and other foreign markets and which does not earn or derive income in the
Philippines
Under present tax laws, RHQs are not subject to Philippine income taxes, subject to compliance with the limitations provided for by
law, with respect to their activities and operations. With respect to Value-Added Tax (VAT), RHQs are exempted, while the sale or lease
of goods and property and the rendition of services to RHQs shall be subject to zero percent (0%) VAT rate.
Regional Operating Headquarters (ROHQ) - are offices of multinational companies allowed to derive income in the Philippines by
performing qualifying services to its affiliates, subsidiaries or branches in the Philippines, in the Asia-Pacific Region and in other foreign
markets.
They are allowed to engage in any of the following services:
• General administration and planning

• Business planning and coordination
• Sourcing/procurement of raw materials and components
• Corporate finance advisory services
• Marketing control and sales promotion
• Training and personnel management
• Logistics services
• Research and development services, and product development
• Technical support and maintenance
• Data processing and communication
• Business development
ROHQs are subject to a preferential tax rate of 10 percent of their taxable income, plus branch profit remittance tax. ROHQs are also
subject to 12 percent VAT, unless entitled to zero-rating. Under Philippine laws, the sale of services to a non-resident, which is paid for
in acceptable foreign currency in accordance with the rules and regulations of the BSP, is subject to VAT at zero rate.
Expatriate employees of Regional or Area Headquarters or Regional Operating Headquarters are exempted from immigration and
registration fees and duties on their personal and household effects. They may also receive multi-entry visas, renewable annually, and
are subject to a preferential tax of 15 percent on their gross income derived from their employment with the regional office.
Whether an investor will set up a subsidiary or elects to open a branch or representative office, it needs to register with the
Philippine Securities and Exchange Commission and with various government offices. These other offices include:

• The Bureau of Internal Revenue (BIR) to obtain the Taxpayer’s Identification Number (TIN) and a Tax Withholding Agent, and
registering its Books of Accounts.
• The Local Government Unit (LGU) in order to obtain the following:
a. Mayor’s permit and business license
b. Community tax certificate
c. Public liability insurance/ comprehensive general liability insurance of the office
d. Barangay clearance.
• The Social Security System (SSS), the Philippine Health Insurance Corporation (Philhealth) and the Pag-ibig Fund (if there are
already any employees on board) to comply with the Philippine social security laws.
SEC Registration Requirements

Minimum Paid-Up Capital Requirement
Based on Industry:
Break Bulk Agent Php 250,000
Cargo Consolidator Php 400,000
Financing Company
Metro Manila and other First Class Cities Php 10,000,000
Other Classes Cities Php 5,000,000
Municipalities Php 2,500,000
Freight Forwarders
Domestic Php 250,000
International Php 2,000,000
Health Maintenance Organization Php 10,000,000
Insurance
Insurance Broker Php 20,000,000
Reinsurance Broker Php 20,000,000
Insurance Broker and Reinsurance Broker Php 50,000,000
Life Insurance Company Php 1,000,000,000
Non-Life Insurance Company Php 1,000,000,000
Reinsurance Company Php 2,000,000,000
Investment Adviser/Manager Php 10,000,000
Investment Company Php 50,000,000

Investment House Php 300,000,000
Mining Php 2,500,000
Non-Vessel operating common carrier Php 4,000,000
Pawnshop Php 100,000

Pre-need Plan Issuer Php 100,000,000
Pre-need Plan Agent Php 5,000,000
Recruitment for Local Employment
Corporation Php 500,000
Partnership Php 200,000
Recruitment for Overseas Employment Php 2,000,000
Retail: Trade with Foreign Equity Php 2,500,000
School (for stock corporations)
Elementary Education Php 1,000,000
Elementary and Secondary Education Php 2,500,000
Elementary, Secondary, Tertiary, Post/ Graduate Education Php 5,000,000
Security Agency Php 500,000
Securities Broker/Dealer (New/ SRO member) Php 100,000,000
Securities Broker/Dealer (Existing/ SRO member) Php 10,000,000
Securities Broker/ Dealer in Proprietary Shares (Non-SRO member) Php 5,000,000
Special Purpose Vehicles Php 31,250,000
Special Purpose Corporation Php 5,000,000
Transfer Agent Php 1,000,000
Based on Foreign Equity:
Domestic Corporation with more than 40% Foreign Equity
Domestic Market Enterprise US$ 200,000

Export Market Enterprise Php 5,000
Foreign Branch Office
Domestic Market Enterprise
Export Market Enterprise US$ 200,000
Partnership with Foreign Partner Php 5,000
Domestic Market Enterprise US$ 200,000
Export Market Enterprise Php 3,000
Foreign Representative Office US$ 30,000
Regional Area Headquarterss (RHQ) US$ 50,000
Regional Operating Headquarters (ROHQ) US$ 200,000

Investment Incentives
The Philippines offers a system of incentives available to enterprises that register with
the Board of Investments (BOI) or with the Philippine Economic Zone Authority (PEZA).
The nature and extent of incentives received by enterprises will depend on the nature of
their business activities in the Philippines.
Investment incentives are available to the following enterprises registered with the BOI:
• Enterprises engaged in preferred projects listed under the current Investment

Priorities Plan (IPP)
• Multinational companies establishing regional or area headquarters in the

Philippines
• Multinationals setting up regional operating headquarters
• Multinational companies establishing regional warehouses in the Philippines
• Enterprises located in less developed areas; and
• Enterprises located in special economic zones.
The following incentives are available to BOI -registered enterprises
Fiscal Incentives
BOI-registered firms are given a number of incentives in the form of tax exemptions and
concessions.
More specifically, the fiscal incentives include the following:
• Income Tax holiday - exemption from the payment of income taxes counted from
the start of commercial operations
6 years - for new projects with pioneer status
4 years - for new projects with non-pioneer status
3 years - for expansion projects
• Tax credit for taxes and duties on raw materials used in the manufacture, processing
or production of export
• Additional deduction for labor expense
• Tax and duty free importation of breeding stocks and genetic materials
• Tax credit on domestic breeding stocks and genetic materials
• Tax credit for taxes and duties on raw materials, supplies and semi-manufactured
products and forming part thereof
• Exemption for wharfage dues and any export tax, duty, impost and fees
• Tax and duty exemption of imported spare parts and supplies
BOI-registered enterprises may import machineries, equipment, spare parts, and

accessories provided the following conditions are met:
• the machinery, equipment, spare parts and accessories to be imported are not
manufactured domestically in sufficient quantity, of comparable quality and at
reasonable prices;

• said machinery, equipment, spare parts, and accessories are reasonably needed and will be used exclusively by the enterprise
in the registered activity. The BOI under some instances, may authorize the temporary use of machinery or equipment in a non-
registered activity to maximize usage thereof or its permanent use in a non-registered activity, upon payment of the proportionate
duties thereon;
• the approval of the BOI was obtained by the registered enterprise for the importation of such machinery, equipment, spare
parts, and accessories before the purchase order is made or before the corresponding letters of credits were opened; and
the rated capacity of the machinery or equipment, if applicable, to be imported is within the registered capacity of the registered
enterprise.
Non-Fiscal Incentives
BOI-registered enterprises are also entitled to the following non-fiscal incentives:
• Employment of foreign nationals
• Simplified customs procedures
• Unlimited use of consigned equipment
• Access to bonded manufacturing/trading warehouse system
• Government assistance on manpower training
Incentives for BOI-Registered Enterprises Engaged in Activities Not Listed in the IPP
An enterprise may still be entitled to the incentives listed above even if the activity is not listed in the IPP so long as:
• At least 50 percent of its production is for export – if Filipino-owned enterprise
• At least 70 percent of its production is for export – if majority foreign-owned (more than 40% foreign equity)
Additional Incentives for Enterprises Located in Less Developed Areas
For BOI-registered enterprises locating in less developed areas, (whether proposed or in an existing venture geared for expansion), the
following additional incentives are available:
• The same set of incentives given to pioneer registered enterprises.

.
• 100 percent of the expenses for necessary and major infrastructure undertaken in the course of operation shall be allowed as
deduction from taxable income.
• An additional deduction from taxable income of 100 percent of the wages corresponding to the increment in the number of
direct labor for skilled and unskilled workers in the year of availment as against the previous year is observed.
Export Processing Zones
For investors registered with the Philippine Economic Zone Authority (PEZA), 100% foreign ownership is allowed. However, total
production must be entirely for export. In certain instances, and subject to the approval of the PEZA, up to 30% of the production may
be sold in the domestic market.
PEZA-registered export and free trade enterprises are given the following incentives:
• Corporate income tax exemption for four (4) years to a maximum of eight (8) years
• Exemption from duties and taxes on imported capital equipment, spare parts, materials, and supplies
• After the lapse of the Income Tax Holiday (ITH), in lieu of all national and local taxes, except real estate taxes on land owned by
developers, a special 5 percent tax rate based in gross income
• Exemption from wharfage dues, export tax impost, and fees

• Tax credit on domestic capital equipment
• Tax and duty-free importation of breeding stocks and genetic materials
• Additional deduction for training expenses (labor and management)
• Permanent resident status for foreign investors and immediate members of

the family
• Employment of foreign nationals
• Additional deduction for labor expense (50 percent of wages corresponding to

increment in number of direct labor subject to certain conditions)
• Simplified import-export procedure
Currently, the government-owned Export Processing Zones (EPZs) are:
1. Bataan Export Processing Zone (BEPZ) – Mariveles, Bataan
2. Baguio City Economic Zone (BCEZ) – Loakan Road, Baguio City
3. Mactan Economic Zone (MEZ) – Lapu-Lapu City, Mactan, Cebu
4. Cavite Economic Zone (CEZ) – Rosario, Cavite
5. Cagayan Economic Zone (CEZ) – Santa Ana and Aparri
6. Zamboanga City Special Economic Zone (ZCSEZ) – Zamboanga City
Special Economic Zones
The Philippine government has vested specific areas with special status to attract
investors. These areas, referred to as special economic zones or ecozones, were
created for industrial expansion, employment generation, promotion of export products,
foreign exchange generation and transfer of technology.
Ecozone developers, operators, facilities, utilities, tourism and domestic market

enterprises are given the following incentives:
• Exemption from national and local taxes except real estate taxes on land owned by
developers, in lieu thereof, special tax of 5 percent based on gross income
• Additional deduction for training expense (labor and management)
• Permanent resident status for foreign investor and family
• Other incentives available under the Investments Code as may be determined by the
PEZA Board.
The following types of ecozones have been organized:
• Free Trade Zones (FTZ). FTZs are designated areas adjacent to a port of entry.
Goods may be unloaded for immediate transshipment or stored, repackaged,
sorted, or otherwise processed without being subject to import duties. However,
goods become taxable the moment they are transferred from the FTZ to a non-free
trade area.

• Export Processing Zones (EPZ). EPZs are specialized industrial estates located
physically and administratively outside customs territories. Activities in these estates
are largely export- oriented industries. Enterprises located in EPZs are allowed to
import capital equipment and raw materials free from duties, taxes, and other import
restrictions.
• Industrial Estates. Industrial estates are designated areas that are subdivided and
developed according to a comprehensive plan under single management. These
estates also have provisions for basic infrastructure and utilities, with available factory
buildings and facilities.
• Tourist/Recreational Centers.These are areas within an ecozone where tourist facilities

such as hotels, apartelles, tourist inns, pensions, resorts, sports and/or recreational
facilities are provided for both local and foreign tourists, travelers, and investors.
Subic Bay Freeport
Among other special economic zones are two of the more attractive investment
locations -- the Subic Bay Freeport Zone and the Clark Special Economic Zone. The
Subic Bay Freeport (SBF) is a special economic and free port area established under
the “Bases Conversion and Development Act of 1992.” The Act provides for a
comprehensive economic development program for the Subic Bay area. The SBF is
located Northwest of Manila. Its harbor opens to the South China Sea. It covers
approximately 60,000 hectares and includes the former U.S. Subic Naval Base.
The following special tax and non-tax incentives have been drawn up for both domestic
and foreign investors who operate within the SBF:
• Liberal tax laws. Investors are exempted from all national and local taxes except
for a 5 percent tax on gross income. Gross income is defined as sales less the cost
of direct salaries, raw materials, intermediate goods, finished goods, supplies and
fuel used for production, depreciation, lease payments or other expenditures on
equipment used in production, financing charges associated with fixed assets, and
rent and utility charges.
• Foreign exchange. Investors are allowed full repatriation of profits.
• Special customs territory. The SBF is classified as a special customs territory

allowing the free movement of goods and capital. Tax and duty-free importation of
raw materials, capital, and equipment are allowed in the SBF.
• Permanent resident status. In cases when an investment of US$250,000 or more is

made, the foreign investor, spouse and unmarried children below 21 years old will
be granted permanent residency status.
• Liberalized banking and financial markets. Banking and finance regulations have
been liberalized with the establishment of foreign currency deposit units within
the SBF. Exchange transactions have also been relaxed, allowing free markets for
foreign exchange, gold, securities, and futures.
Clark Special Economic Zone
In 1993, then President Fidel V. Ramos created the Clark Development Corporation (CDC)
to oversee the conversion of the former US Air Base in Clark Field into an international
aviation complex and special economic zone. Dubbed as the “Clark Special Economic
Zone” (CSEZ), it is located in the provinces of Pampanga and Tarlac, about 80 kilometers
north of Manila and about 70 kilometers from Subic Bay and covers an area of around
28,000 hectares.
The CSEZ has extensive infrastructure and support facilities ideal for an international
aviation complex. In addition, land is available for industrial and agro-industrial
development. Infrastructure projects such as telecommunications, power, international
airport, housing and industrial units have been developed.

Enterprises located in the CSEZ enjoy similar liberal tax laws as those provided within the
SBF.
Other incentives include the free flow or movement of goods and capital, tax and duty-
free importation of machineries, equipment, raw materials, supplies and all other articles
including finished goods and other incentives applicable in Economic
Processing Zones.
Tourism Enterprise Zone
Investors may establish tourism enterprises such as: travel and tour services, tourist
transport services, tour guides, adventure sports services, convention organizers,
accommodation establishments, tourism estate management services, restaurants,
shops and department stores, sports and recreational centers, spas,
museums and galleries, theme parks, convention centers, and zoos.
New enterprises and existing enterprises in Tourism Zones are entitled to an income tax
holiday for a period of six (6) years from the start of business operations. The
income tax holiday may be extended if the enterprise undertakes a substantial
expansion or upgrade of its facilities prior to the expiration of the first six (6) years.
The extension shall consider the cost of such expansion or upgrade in relation to the
original investment, but shall in no case exceed an additional six (6) years.
Tourism enterprises shall be allowed to carry over as deduction from the gross income
for the next six (6) consecutive years immediately following the year of the loss, their
net operating losses for any taxable year immediately preceding the current taxable year
which had not been previously offset as deduction from gross income.
After the ITH, new enterprises shall be liable to a tax of 5 % on its gross income which
shall be in lieu of all other national taxes, license fees, imposts and assessments, except
real estate taxes and such fees as may be imposed by TIEZA.
Tourism enterprises shall likewise be entitled to a 100 % exemption from all other taxes
and customs duties on importation of capital equipment, transportation and
accompanying spare parts and goods actually consumed in the course of services
actually rendered by or through registered enterprises within a TEZ.
Other Incentives
Renewable Energy Act of 2008
Renewable Energy Developers of, renewable energy facilities, including hybrid systems,
in proportion to and to the extent of the renewable energy component, for both power
and non-power applications, as duly certified by the DOE, in consultation with the BOI,
shall be entitled to the following incentives:
• Income tax holiday for first seven (7) years of commercial operations
• Duty-free importation of machines, equipments and materials within 10
years upon the issuance of certification
• Special realty tax rates on equipment and machinery
• Net operation loss carry over for the first three years from the start of
commercial operations
• Corporate tax rate of 10 percent after the seven years of income tax holiday
• Zero percent VAT on the sale of fuel or power
• Cash incentive for missionary electrification
• Tax exemption of proceeds of carbon credit sales
• Tax credit on domestic capital equipment and services.
Those accredited by the DOE are entitled to the following benefits:
• Tax and duty-free importation of component part and materials

• Tax credit on domestic capital components, parts and materials

• Zero percent VAT on transactions with local suppliers of goods properties and services.
Registration with the Board of Investments (BOI)
An investor whose chosen activity is found in the Investment Priorities Plan (IPP), or
for export and who wishes to avail of incentives, may register with the BOI. This can
be done simultaneously with the filing of a certificate with the SEC (for partnerships and corporations) or the Bureau of Trade
Regulations and Consumer Protection (for single proprietorships).
An investor who does not seek incentives and/or whose chosen activities do not qualify for incentives (i.e., the activity is not listed in
the IPP and does not export at least 70 percent of production) can apply directly with the SEC for the registration of its articles of
incorporation or partnership. The investor has to be guided by the Foreign Investment Negative List (FINL), which covers investment
areas/activities opened to foreign investors and/or reserved to Filipino nationals.
Requirements
• SEC Certificate (Articles of Incorporation/ Partnership and By-Laws); DTI Registration (Sole Proprietorship)
• Audited Financial Statement and Income Tax Return (past three years)
• Board Resolution to authorized company representative
• Accomplished Application Form 501 and Project Report
Registration Procedure
• File BOI Form 501 with supporting documents and filing fee
• Evaluation of Application and Preparation of Evaluation Report (including Publication of Notice of Filing of
Application, plant visit)
• Presentation to the BOI Management Committee
• BOI Governing Board Confirmation
• Letter advice to Applicant of Board Action
• If approved, send letter of approval and pre-registration requirements
• Applicant complies with the pre-registration requirements
• Preparation and issuance of Certificate of Registration upon payment by applicant of Registration Fee
• Release of Certificate of Registration
Registration with the Philippine Economic Zone Authority (PEZA)
Registration Requirements for Export Enterprises/IT Enterprises
• Duly accomplished and notarized application form

• SEC (Articles of Incorporation and By-Laws)/ DTI Registration (Sole Proprietorship)
• Board Resolution/ Special Power of Attorney for Representative
• Document/ Clearance to use the land subject of this application or Reservation
• Submit application form

• Evaluation and Recommendation for approval of the PEZA Board
• PEZA Board approval
• Submission of pre-registration requirements
• Signing of Registration Agreement
• Submission of Post-Registration requirements
• Start of Commercial Application
Registration Requirements For Ecozone Developers
• Duly accomplished and notarized application form

• SEC Registration and Articles of Incorporation
• Audited Financial Statements (for the last three years of operation, where applicable)
• Board Resolution/ Special Power of Attorney designating the company’s authorized representative to PEZA
• Project Study

• Vicinity map reflecting the various land uses and important verifiable landmarks within one (1) kilometer radius of the
project site
• Proof of land ownership or any perfected contract/ document confirming the applicant’s authority/ clearance to use the
land for economic zone development and related purposes
• If the applicant is not the registered owner, a perfected contract/ document confirming the applicant’s authority/
clearance to apply for and use the land for ecozone and related purposes is required
• Endorsement from the Sangguniang Bayan/Panlungsod for the development of the proposed economic zone (i.e., all
local government units of all municipalities and cities with areas included in the proposed economic zone
• Certification from the Department of Agriculture that the area for the proposed economic zone is not or has ceased to be
economically feasible and sound for agricultural purposes (i.e., the area is marginal for agricultural use)
• DAR Conversion Clearance or Exemption Certificate (or HLURB Zoning Certification, whichever is applicable) and if the
proposed area is zoned as agricultural on or before 15 June 1988, a DAR Conversion Clearance/ Order is required.
However, if the zoning of the area is non-agricultural on or before said date, a DAR Exemption Certificate or HLURB Zoning
Certification shall be required
• Other documents that may be required
• Submit application with attachments

• Evaluation
• Submission to PEZA Board
• Board Approval
• Submission of Presidential Proclamation Requirement
• Endorsement for Malacañang
• Issuance of Presidential Proclamation
• Submit Pre-Registration Requirements
• Registration Agreement Signing
Registration with the SBMA
Requirements
• Duly Accomplished SBF Application Form

• Letter of Intent/ Business Proposal
• Business Proposal
• Audited Financial Statement
• Company Information/ Brochures
• Client/ Supplier List
• Financial projections
• SEC Certificate (Articles of Incorporation and By-Laws)/DTI Registration (Sole Proprietorship)
• Certification of deposits and credit standing
• Draft Sublease Agreement (for sub-lease)
• List of Assets for SBF Operations
• Submission of Letter of Intent and Application for Registration

• Evaluation
• Presentation to the SBMA Chairman and Board
• Board Approval
• Registration requirements completion
• Issuance of Certificate of Registration

Tax Incentives to Encourage REIT
To encourage the formation of REITs, the Further, all applicable registration and
law provides a number of tax incentives to annotation fees to be paid, related or
the REITs and to their shareholders. incidental to the transfer of assets or the
related security interest are reduced to
Reduction of Income Tax fifty percent (50%) of the normal rates.
While a REIT is subject to the regular The above reduction in the DST and fees
corporate income tax under the Tax Code, can be availed of by an unlisted REIT,
the law effectively reduces its income tax provided it is listed with the Philippine
burden by allowing the REIT to reduce Stock Exchange not later than two (2)
its taxable net income by the value of years from the date of the initial availment
dividends it distributed out of its of the incentives.
distributable income as of the end of the
taxable year to holders of its common The fifty percent (50%) reduction of the
and preferred shares. For purposes of applicable DST shall nevertheless be due
computing the taxable net income of a and demandable together with the
REIT, dividends distributed by a REIT applicable surcharge, penalties, and
from its distributable income after the interest thereon reckoned from the date seven (7) years from the effectivity of the
close of a taxable year and on or before such taxes should have been paid upon tax regulations implementing the law.
the last day of the fifth (5th) month a REIT’s failure to address the following
following the close of the taxable year events within the required curing period: Nonresident aliens, who are normally
shall be considered as paid on the last day taxed at the rate of 20 or 25 percent are
of such taxable year. (i) Failure to list within the required able to enjoy a reduction of the tax on
period dividends from a REIT to 10 percent.
It must be noted however that a REIT may (ii) Failure to maintain its status as a
lose the above benefit upon its public company Domestic corporations and resident
failure to address the following events (iii) Failure to maintain the listed status foreign corporations receiving dividends
within the required curing period: of the investor securities on the from a REIT continue to enjoy an exemp-
Philippine Stock Exchange and tion from the dividends tax. Nonresident
(i) Failure to maintain its status as a the registration of the investor foreign corporations which are taxed from
public company securities by the Securities and 15 to 30 percent on the dividends they
(ii) Failure to maintain the listed status Exchange Commission; and/or receive from domestic corporations will
of the investor securities on the (iv) Failure to distribute at least ninety enjoy a 10 percent tax rate on dividends
Philippine Stock Exchange and the percent (90%) of its distributable received from a REIT.
registration of the investor securities income
by the Securities and Exchange Value added tax
Commission; and/or Exemption from DST and Percentage
(iii) Failure to distribute at least ninety Tax on the Issuance and Transfer of REITs continue to be subject to value-
percent (90 percent) of its Investor Securities. added tax on its gross sales from any
distributable income. disposal of real property, and on its gross
Any sale, barter or exchange or other receipts from the rental of such real
A REIT is exempted from the minimum disposition of listed investor securities property. However, a REIT shall not be
corporate income tax. through the Philippine Stock Exchange, considered as a dealer in securities and
including block sales or cross sales with shall not be subject to VAT on its sale,
Reduction of Creditable Withholding prior approval from the Philippine Stock exchange or transfer of securities forming
Tax. Exchange, shall be exempt from the DST. part of its real estate-related assets.
Income payments to a REIT are subject to Any initial public offering and secondary Withdrawal of Tax Incentives Upon
a lower creditable withholding tax of one offering of investor securities shall be Delisting
percent (1%). exempt from the applicable percentage tax
under the Tax Code. In the event the REIT is delisted from the
Reduction of Documentary Stamp Tax Exchange, whether voluntarily or involun-
(DST) and Registration Fees on the Sale Dividends tarily, the tax incentives granted to it shall
or Transfer of Assets be automatically revoked and withdrawn as
Dividends received by Philippine citizens of the date the delisting becomes final and
The sale or transfer of real property to and resident aliens are still taxable at executory. Any tax incentives that may
REITs, which includes the sale or transfer the rate of ten percent (10%). However, have been availed of by the REIT thereaf-
of any and all related security interest, is Filipinos working abroad who invest in a ter shall immediately be refunded to the
subject to only fifty percent (50%) of the REIT are exempt from the dividends tax for Government.
DST imposed under the Tax Code.

Work Regulations
All employees are entitled to a minimum wage fixed by the Regional Wage Boards, with wages varying with the skill and experience of
the workers and the location of the workers (see page 58 for average monthly wage rates of selected occupations in selected non-
agricultural industries in Metro Manila).
Employees are also entitled to the following benefits mandated by the Labor Code of the Philippines:
• 13th month salary

• minimum retirement benefits
• service incentive leave
• overtime pay
• holiday pay
• night shift differential and other entitlements
In addition, large establishments sometimes provide sick, vacation, and holiday leaves, private pension plans, year-end bonuses,
subsidized meals, rice and transportation allowances, uniforms and group hospitalization, and life insurance benefits. An employee may
be required to work for a maximum period of eight (8) hours a day or 48 hours a week. Regulations provide for an overtime premium
ranging from 10 percent to 200 percent, depending on the overtime hours undertaken if regular overtime (25 percent), on a night
shift (10 percent), or on a holiday-related leave (200 percent). The law also provides for paid maternity and paternity leaves. Further, no
employer may terminate a regular employee except for a just or authorized cause. If termination is due to retrenchment, ill health, or
certain other causes, the employee is entitled to separation pay.
Employees and employers regularly share contributions to the Social Security System, Employees’ Compensation Program, PhilHealth
(formerly Medicare), and Home Development Mutual Fund or Pag-Ibig Fund. The majority of workers in the manufacturing sector are
organized into trade unions. As a result, there is a significant protection for workers that includes the right for workers to organize
unions, conduct strikes, and collaborate in collective bargaining agreements. The major instrument in resolving labor disputes has been
collective bargaining.

Visas and Work Permits
Generally, foreign visitors, whether on business or pleasure, are not required to
secure a visa if they will stay in the Philippines for a period not exceeding 21 days, have a
return travel ticket or a ticket to their next port of destination and their passports are valid
for a period at least six (6) months beyond their contemplated period of stay. Should a
foreign visitor without a visa need to stay longer, he may request an extension from the
Bureau of Immigration.
Foreign visitors may obtain a pre-arranged visa from the Philippine embassy or
consulate in their country of origin. Temporary visitor visas grant a foreign visitor to
stay in the Philippines for a period of 59 days. Such period may be extended through
the Bureau of Immigration. Foreign visitors may also avail of the Pre-Arranged Visa Upon
Arrival program of the Philippine Bureau of Immigration. In case of the latter, foreign
visitors are required to coordinate with legitimate Philippine organizations which will
vouch for their character and assist them in filing the necessary applications with the
Bureau of Immigration. Applicants are then informed whether they would be able to
receive a single or multiple entry visa upon their arrival in the Philippines.
Foreign citizens intending to work in the Philippines generally need to obtain a work
permits from the Department of Labor and Employment and the corresponding work
visas.
Specific laws also grant visa incentives to investors or specific types of foreign
employees.
For instance, a foreign citizen intending to invest in the Philippines may apply for a
Special Investors Resident Visa (SIRV) if such investor commits to invest at least
US$75,000.00 and who can meet the following other requirements:
• He has not been convicted of a crime involving moral turpitude
• He is not afflicted with any dangerous or contagious disease
• He has not been institutionalized for any mental disorder or disability
A foreign citizen may also receive the Special Visa for Employment Generation (SVEG)
if he is able to employ at least ten (10) Filipino citizens in a lawful and sustainable trade,
enterprise or industry. The visa privileges may extend to the qualified foreigner’s spouse
and dependent unmarried child/children below eighteen (18) years of age whether
legitimate, illegitimate or adopted. The foreign citizen must meet the
following requirements:
• The foreigner shall actually, directly or exclusively engage in viable and sustainable
commercial investment/enterprise in the Philippines, exercises/performs
management acts or has the authority to hire, promote and dismiss employees;
• He evinces a genuine intention to indefinitely remain in the Philippines,
• He is not a risk to national security.
• The foreigner’s commercial investment/enterprise must provide actual employment

to at least ten (10) Filipinos in accordance with Philippine labor laws and other
applicable special laws.
The above-mentioned requirements must be continually satisfied by the foreigner for

him/her to continue to be a holder of the SVEG.
It may also be important to note that foreign citizens employed by Regional

Headquarters or Regional Operating Headquarters, their spouses and unmarried children
below 21 years of age are entitled to receive multiple-entry visas, valid for one year,
extendible on a yearly basis.

Statutory Holidays
Fixed dates
January 1 - New Year’s Day

April 9 - Araw ng Kagitingan
May 1 - Labor Day
June 12 - Independence Day
November 1 - All Saints’ Day
November 30 - Andres Bonifacio Day
December 25 - Christmas Day
December 30 - Rizal Day
December 31 - Last day of the year
National Heroes’ Day - Last Monday of August

End of Ramadan (Eid’l-Fitr) - Usually held in November
Maundy Thursday, Good Friday and Black Saturday
Also included in the list of nationwide special non-working days are February 25
(Anniversary of EDSA People Power Revolution) and August 21 (Martyrdom of Benigno
Aquino). There are a number of non-working or unscheduled holidays that may also be
announced on short notice.
R.A. 9492 dated 25 July 2007 generally states that holidays shall be moved on the
nearest Monday. In the event that the holiday falls on a Wednesday, the holiday will be
observed on the Monday of the following week.
General Tips in Doing Business in the Philippines
• The greater Manila area accounts for about 70 percent of the Philippines’ main
consumer market. Manila is the principal commercial, industrial and financial
center.
• Apart from Manila, the other main inter-regional centers are Cebu, Davao,
Zamboanga and Iloilo.
• Large trading companies in the Philippines handle a high percentage of import

orders. However, as each trading house may represent several hundred overseas
companies, they are not able to carry extensive stocks and also act as indentors
and agents.
• In business negotiations, all the essential details should be discussed and

documented to avoid any future misunderstandings. Try to include an arbitration
clause or other method for settling disputes.
• The best months to travel to the Philippines are from October to November and
January to March. Try to avoid traveling two weeks before and after Christmas
and the week before and after Easter.
• Business hours are generally from 8:00 a.m. to 5:00 p.m., Mondays to Friday, for
both government and private offices, with many companies adding a 1/2 working
day on Saturday.

Estimated Cost of Doing Business
SECURITIES AND EXCHANGE COMMISSION (SEC) CLARK DEVELOPMENT CORPORATION (CDC)
Registration of Corporation Business Name Registration

and Partnerships Main Fees to be Paid (Bureau of Trade Regulation
and Consumer Protection -
Stock Corporations BTRCP)
1/5 of 1% of the Authorized 1. Registration of Enterprises Php 315- 515

Capital Stock or the
subscription price of the Project Costs not exceeding Php
subscribed capital stock 4 million Php 2,000
whichever is higher but not
Filing Fee less than Php 1,000
Permit to Operate (Annually) Php 1,000
1% OF THE Filing Fee but not
Temporary Permit to Operate Php 500
Legal Research less than Php 1,000
By-laws(Fixed) Php 500 2. Processing and issuance of

Environmental Compliance
Non-Stock Corporations Certificate (ECC) Php 300
Filing Fee of Articles of In accordance with the

Incorporation Php 500 National Building Code by
3. Construction CDC
By-laws Php 500
Note: Regular fees including Clark Special Economic Zone
Partnerships Locations Association shall also be charged to cover expenses for
security, road lighting, garbage collection, etc.
1/5 of 1% of the authorized
Capital stock of the
subscription price of the
subscribed capital stock
whichever is higher but not PHILIPPINE ECONOMIC ZONE AUTHORITY (PEZA)
Articles of Partnership less than Php 1,000
1. Application
1% of the Filing Fee but not
Legal Research less than Php 10 1. Registration of Ecozone Enterprises
Source: Board of Investments a. Application for New Project

(non-pioneer) Php 3,500
BOARD OF INVESTMENTS (BOI)
b. Application for New Project
Registration for Incentives Availment under Executive Order No. (pioneer) Php 6,000
226
c. Application for any
Amendments in Registration Php 1200
Filing Fees for Application for
Registration (under Book 1) Main Fees to be Paid d. Application for Conversion
from Non-pioneer to Pioneer Php 2,400
Project costs not exceeding Php
4 Million Php 1,500 e. Application for Expansion for
Production Capacity Php 2,400
Project costs exceeding Php 4M
but not over Php 20M Php 3,000
2. Registration Fees
Project costs exceeding Php 20M
but not over Php 50M Php 4,500 a. Registration for New Projects Php 6,000
Project costs exceeding Php 50M Php 6,000 b. Registration for Expansion of
Project - New Project Php 6,000
1/10 of 1% of project cost but
Fees for Certificate of not less than Php 3,000 and Php 6,000 + 10% of monthly
Registration not to exceed Php 15,000 c. Telecom Services and Other gross revenues from
Utilities operations
d. All other Services Enterprise Php 3,600

DEPARTMENT OF TRADE AND INDUSTRY (DTI)
II. Processing fees
Business Name Registration (
Bureau of trade regulation and
Consumer Protection) Main Fees to be Paid Available Incentives
Application Fees Php 315 to 515 a. Endorsement of 5% Gross

Income Tax and of Income Tax
Single Proprietorship Php 300 Holiday Php 1,200
Partnership/Corporation Php 500
b. Extension of ITH Entitlement
Documentary stamp Php 15 Period Php 1,200
Sole Proprietorship uner FIA Php 5,800
Php 300 Certification/True Copies
1. Certificate of registration Php 120

Business Name Registration Fee
2. Filing Approval of Application Php 120
Filinf fee Php 500
FIA Registration Fee Php 5,000 3. Other Documents Php 120

Labor Cost
Manpower Resources (Labor):
The laws on labor standards and employment relations are consolidated in the Labor Code
of the Philippines. The salient points of employment conditions and employee benefits under
the Philippine labor laws are as follows:
Eight (8) hours per day or 48 hours per week. Daily Minimum Wage
Rest periods of short duration during work hours Rates Non-Agriculture
Hours of Work shall be counted as hours worked. Regions Industries (in peso/day)
A day is the 24-hour period which commences Region 1 Php 220- 240
from the time the employee regularly starts to
Work Day work. Region 2 Php 227- 235
The minimum wage rate for agricultural Region 3 Php 251- 302
and non-agricultural workers in every
Region 4
Minimum Wage region are determined by the Regional
CALABARZON Php 236- 320
(Manufacturing Sector) Tripartite Wages and Productivity Board.
MIMAROPA Php 240- 252
Daily Minimum Wage Rates Region 5 Php 196- 239

Non-Agriculture industries
Regions (in Peso/day) Region 6 Php 240- 252
Region 7 Php 222- 267

Metro Manila
- Wage Order # NCR 12b(11 July Region 8 Php 238
2006) as amended by Wage Region 9 Php 240
Order # NCR-13 (6 August 2007)
- Private sector workers and Region 10 Php 241- 256
employees Php 345 - Php 382
Region 11 Php 265
Php 260- 9Baguio City, La CARAGA Php 233
trinidad, Tuba, Itogon and
Sablan) ARMM Php 210
Php 243- (Mt. Province, Abra

and other municipalities Category Computation (in Philippine Pesos)
CAR (Cordillera Autonomous Benguet, Ifugao, kalinga and
Region) Apayao) OT Work on Regular
Day 125% of Rate/Hour
Fringe Benefits First 8 Hours:
130% of Rate/Hour
This refers to goods, services, or other benefits furnished by an employer
in cash or kind, in adddition to basic salaries; to managerial or supervisory OT Work during Rest In excess of the First 8 Hours:
employees such as but not limited to the following: Day or Special Public 130% of Rate/Hour + 30% of (130% of
Holiday Rate/Hour)
 Housing;
 Expense Account; First 8 Hours:

OT work on Special
150% of Rate/Hour
Public Holiday falling on
   Vehicle of Any Kind;
employee’s rest day
In Excess of the First 8 hours:
   Household personnel, such as maid, driver and others; 150% of Rate/Hour+30% of(150% of
   Interest on loans at less than market rate to the extent of the difference Rate/Hour)
between the market rate and actual rate granted;
First 8 Hours:
   Membership fees, dues and other expenses borne by the employer for the 200% of Rate/Hour
employee in social and athletic clubs or
other similar organizations; In Excess of the First 8 hours:
OT work on Regular 200% of Rate/Hour+30% of(200% of
 Expenses for foreign travel; Holiday Rate/Hour)
 Holiday and vacation expenses
First 8 Hours:
 Educational assistance to the employee or his dependents; and 260% of Rate/Hour
 Life or health insurance and other non-life insurance premiums or similar OT work on Rest Day In Excess of the First 8 hours:
amounts in excess of what the law allows. falling on a Regular 260% of Rate/Hour+30% of(260% of
Holiday Rate/Hour)
Managerial employees refer to those who are given powers or prerogatives
to lay down and execute managerial policies and or to hire, transfer, suspend,
lay-off, recall, discharge, assign, or discipline employees. Overtime (OT) Remuneration
Supervisory employees are those who effectively recommend such Overtime premium is allotted for work exceeding the maximum prescribed
managerial actions if the exercise of such authority is not merely routinary or period. The OT rates per hour for overtime work rendered on the specified
clerical in nature but requirres the use of independent judgment. days:

Utility Costs
Water Rates Sewage Treatment
Water - Residential Php 8.50-18/ cu.m. or

(Maynilad) 50% of actual water
First 10 cu.m. Php 76.13 First 1000 cu.m charges
In excess of 10/cu.m. Php 13.04
Source: Philippine Ecozone Association
Water – Industrial – Philea
Member I.E.
First 1000 cu. m. Php 8.90 – 18/ cu.m.
In excess of 1000 cu.m. Php 10.60 – 20/ cu.m.
Communication Service
Telecommunication Rates International Calls PLDT Rates
Telephone Rental (PLDT ASEAN/ Hongkong/

Rates) Japan/ Macao/ South
Residential Korea
- Installation 1st Minute US $0.40
- Monthly Billing Succeeding minutes US $0.40
(estimated) Php 1,999
Business Php 760 (+12% VAT) Australia/ New Zealand
- Installation 1st Minute US $0.40
- Monthly Billing Php 3,500 Succeeding minutes US $0.40
(estimated) Php 1,500 (+12% VAT)
USA/ Canada
1st Minute US $0.40
Succeeding minutes US $0.40
France/ Germany/ Italy/

Spain/ U.K.
Fax Charges
1st Minute US $0.40
Local International Succeeding minutes US $0.40
China and India

1st Minute US $0.40
Succeeding minutes US $0.40
Fax Charges US$ 0.40/copy US$ 0.80/copy
Kuwait/ UAE/ Bahrain/
256 KB Frame relay w/ Saudi Arabia
local loop (Manila to W. 1st Minute US $0.40
Europe) US$ 22 to 27/mo. Succeeding minutes US $0.40
Cellular Mobile Phone System
SMS Call SMS Call
Php 6.50 same network

and php 7.50 other
Globe Php 1 network or landline Php 15 US$ 0.40/min.
Php 6.50 same network

and php 7.50 other
Smart Php 1 network or landline Php 15 US$ 0.40/min.
Internet Service Fees
Installation Fee (Email

Account) Free to Php 800
Installation Fee (Web

Account) Php 500
Subscription Rates (varies

depending on the type of
subscription plan –
monthly, quarterly, semi-
annual & annual and
number of hours to be
used by the company) Php 253 to 100,000

Accounting, Auditing
and Taxation
In this Chapter:
• Books of Accounts and Records

• SEC Requirements
• Audit of Accounts
• Tax Administration
• Income Taxes
• Value Added Tax
• Local Taxes
• Land and Property Tax
• Philippine Trade and Customs Environment
• Transfer Pricing

Books of Accounts and Records
In the Philippines, all natural and juridical persons required by law to pay internal revenue taxes shall maintain and keep proper books
of accounts and records of all business transactions. These books and records include, among others, business transactions,
correspondences, books of inventories and balances, contracts, journals, ledgers, income tax returns, financial statements and other
subsidiary books as required by business.
For taxation purposes, all books of accounts are required to be preserved for a period of three (3) years after the last day prescribed by
law for filing the return, or provided that in a case where a return is filed beyond the period prescribed by law, the three year
period shall be counted from the day the return was filed. Philippine internal revenue officers are authorized to inspect books of
accounts. The inspection is generally made only once in a taxable year. The authority to do so is limited to the same period.
Philippine laws, under certain conditions, provide any director, trustee, stockholder or member of a corporation the right to inspect cor-
porate books and records. Books and records of a corporation are ordinarily kept in the custody of the corporate secretary.
Generally Accepted Accounting Principles
Generally accepted accounting principles in the Philippines (Philippine GAAP) are currently based on International Financial Reporting
Standards (IFRS) which are issued by the International Accounting Standards Board (IASB).
IFRS have been gradually phased into the Philippine financial reporting system. Full adoption of IFRS came in 2005. The
Financial Reporting Standards Council (FRSC), the accounting-standard setting body in the Philippines, issues standards in a series
of pronouncements called Philippine Financial Reporting Standards (PFRS). PFRS consist of PFRS [which correspond to IFRS],
Philippine Accounting Standards (PAS) [which correspond to International Accounting Standards (IAS)] and Philippine
Interpretations. Among others, the Philippine Securities and Exchange Commission (SEC) and the Bangko Sentral ng Pilipinas (BSP)
adopted, as part of their rules, these IASB-prescribed standards effective 2005. As a result, Philippine companies, particularly those
dealing with the investing public, prepare their financial statements in accordance with the new financial reporting framework based on
IFRS.
While the goal or strategy was for all Philippine companies to be 100 percent IFRS-compliant or to adopt the international standards as
is, some companies or specific industries needed more time to adopt some of these new accounting standards while others needed
specific exemptions. Some of these are the following:
• Non-publicly Accountable Entities or NPAEs– Philippine version of Small and Medium-sized Entities or SMEs allowed an option of
not adopting IFRS.
• On pension accounting, upon first-time adoption of PFRS, companies allowed to amortize pension transition obligation over up to
five years, as opposed to an immediate hit to retained earnings.
• Exemption from applying tainting rule for a specific set of financial instruments. For example, the Exchange Bond program of the
Philippine government.
• Commodity derivative contracts of mining companies as of January 1, 2005 “grandfathered” and exempted from the fair value
requirements of IAS 39 if all certain conditions are met.
• Pre-need companies allowed to use another comprehensive set of accounting principles.

• Deviation from IFRS of certain BSP-prescribed accounting rules for banks. For
example, banks provide for bad debts based on rules prescribed by the BSP
including expected losses while IFRS considers the present value of projected
cash flows and only incurred losses; losses from sales of non-performing assets
under the Philippine Special Purpose Vehicle law are amortized over a period of
time while IFRS would recognize those losses in the year of sale; and investment
properties are valued at cost while IFRS allows either cost or fair value.
SEC Requirements
As a rule, the SEC requires all corporations with gross sales or revenue of Php 10M
and above to file, among others, four (4) copies and a diskette of the Audited Financial
Statements, duly stamped as “received” by the BIR within 120 days from the end of
the fiscal year indicated in the corporate By-Laws. For corporations whose securities are
registered under the Securities Regulation Code, the due date shall be 105 days from
the end of their operating period. A certification that the diskette containing the Audited
Financial Statements has the basic and material data in the Audited Financial Statements,
executed under oath by the corporate treasurer, shall also be submitted.
Within the same period, corporations with less than PhP 10M gross sales or revenue
have the option to file the Audited Financial Statements with diskettes. Otherwise, they
shall file printed copies of the said documents, among others.
Audit of Accounts
Corporations, companies or persons whose gross quarterly sales, earnings, receipts or
output exceed One Hundred Fifty Thousand Pesos (Php150,000), may file their annual
income tax returns accompanied by balance sheets, profit and loss statements,
schedules listing income-producing properties and the corresponding income therefrom,
and other relevant statements duly certified by an independent CPA, which shall be
considered as sufficient compliance with the filing and accomplishment of the Account
formation Return required by law.
Regulated entities, such as banks, insurance companies, public utilities, and other
corporations in specialized activities, are required to submit audited financial statements
to their respective government regulatory agencies in addition to the SEC filing.
Generally, foreign corporations duly licensed to do business in the Philippines are
required to submit annual reports of their operations, as well as financial statements
showing assets, liabilities and net worth within 120 days after the end of the fiscal year
of the licensee. Foreign corporations are also required to comply with reportorial
requirements prescribed by other government bodies under whose jurisdiction they fall.
Tax Administration
Philippine taxes are imposed on two levels – at the national government level and the
local government level (i.e., provinces, cities and municipalities). Taxes at the national
level are collected under the National Internal Revenue Code (NIRC), the Tariff and
Customs Code (TCC), and under other special laws. The NIRC is administered by the BIR
while the TCC is administered by the Bureau of Customs (BOC). Both bureaus are under
the administrative supervision of the Department of Finance. Local government taxes
are governed by the Local Government Code and is administered by the Treasurer and
Assessor’s Offices of the local government unit concerned.
The different taxes collected under the NIRC are:
1. Income tax 4. Estate and donor’s tax

2. Value added tax 5. Other percentage taxes
3. Excise tax 6. Documentary stamp tax

Income Taxes
The definition of taxable income and the applicable tax rates depend on the category of
the taxpayer.
Domestic corporations
A corporation is deemed to be a domestic corporation if it is organized under the laws of

the Philippines. Domestic corporations are taxed on net income derived from sources
within and outside the Philippines. The regular corporate income tax rate is 30 percent.
In determining its taxable income, a domestic corporation may reduce its gross income
by the deductions allowed under the NIRC or by the optional standard deduction of 40
percent of its gross income.
Domestic corporations are liable for a 2 percent Minimum Corporate Income Tax
(MCIT) on its gross income beginning on the fourth year after it commences business
operations, when such MCIT is greater than tax computed under the regular corporate
income tax regime. Any excess of the MCIT over the regular corporate income tax shall
be carried forward and credited against the regular income tax for the three
immediately succeeding taxable years.
Foreign corporations
Corporations not organized under the laws of the Philippines are classified as foreign
corporations. They may either be a resident foreign corporation – one that is engaged in
trade or business in the Philippines – or a nonresident foreign corporation.
Resident foreign corporations are taxed on their net income derived from sources within
the Philippines at the rate of 30 percent.
In determining its taxable income, a resident foreign corporation may reduce its gross
income by the deductions allowed under the NIRC or by the optional standard
deduction of 40 percent of its gross income.
In addition to the regular corporate income tax, a resident foreign corporation is also
liable for the branch profit tax. Profits remitted out of the Philippines by a branch to its
head office are generally subject to a branch profit tax of 15 percent. This rate may be
reduced if the nonresident foreign corporation is able to claim the benefit of a tax treaty.
Profits remitted by a branch registered with the Philippine Economic Zone Authority
(PEZA) and other special economic zones are exempt from the branch profits remittance
tax.
Resident foreign corporations are also liable for the MCIT in the same manner as
domestic corporations.
Certain resident foreign corporations are subject to different income tax regimes:
Income derived by offshore banking units (OBUs) from foreign currency transactions with
nonresidents, other OBUs and local commercial banks are exempt from all types of taxes
except the final tax of 10 percent on their interest income derived from foreign currency
loans granted to residents other than OBUs or local commercial banks. International
carriers are subject to a 2.5 percent final tax based on gross Philippine billings unless
reduced by the application of a tax treaty
Nonresident foreign corporations are taxed on their gross income from Philippine sources
at the rate of 30 percent.
Certain nonresident foreign corporations are subject to different income tax regimes.
Nonresident cinematographic film owners, lessors or distributors are subject to 25
percent final withholding tax on their gross income from Philippine sources. The gross
rentals, lease or charter fees of nonresident owners or lessors of vessels chartered by
Philippine nationals from leases or charters as approved by the Maritime Industry

Authority are subject to 4.5 percent final withholding tax. Non-resident lessors of aircraft,
machineries and other equipment are subject to a 7.5 percent final withholding tax
unless reduced by the application of a tax treaty.
Individuals
Resident Philippine citizens are taxed on their worldwide income. Individual nonresident
Philippine citizens and Philippine citizens classified as overseas contract workers,
including seamen, are taxed only on income from Philippine sources. Resident and
nonresident aliens are taxed only on income from sources in the Philippines.
Philippine citizens, resident aliens and nonresident aliens engaged in trade or

business sin the Philippines are generally taxed under a progressive scale between
5 percent to 32 percent after the application of deductions and exemptions enumerated
by the NIRC. In determining their taxable income, individual taxpayers who are not purely
compensation earners, except nonresident aliens, may reduce their gross income by the
optional standard deduction of 40 percent of their gross income or gross receipts.
Certain passive incomes are not subject to the general personal income tax rate but to
final taxes.
Some resident aliens may avail of special tax rates under the NIRC or under special laws.
For example, alien individuals employed by Regional or Area Headquarters or Regional
Operating Headquarters, Offshore Banking Units and Petroleum Service Contractor and
Subcontractor are taxed at a rate of 15 percent of their salaries and remuneration.
Filipinos occupying the same positions may be taxed similarly.
Treatment of Dividends, Royalties and Interest Income
Dividends received by domestic corporations or resident foreign corporations from

domestic corporations are not taxed.
Cash dividends and property dividends received by non-resident foreign corporations

from domestic corporations are subject to a 30 percent withholding tax. This tax may
be reduced to 15 percent if the country of the nonresident foreign corporate shareholder
allows as a tax credit the taxes deemed to have been paid in the Philippines equivalent to
15 percent.
Gross dividends in cash or property received by Philippine citizens and resident alien
individuals are subject to tax at 10 percent. Cash or property dividends from domestic
corporations received by nonresident alien individuals engaged in Philippine trade or
business are subject to a 20 percent final withholding tax while those received by
nonresident aliens not engaged in trade or business in the Philippines is subject to a
25 percent final withholding tax.
Royalties received by domestic and resident foreign corporations are normally subject to
a 20 percent final withholding tax, except royalties from books, other literary works, and
musical compositions where the final withholding tax is 10 percent. Royalties received
by non-resident foreign corporations are generally subject to a final withholding tax of 30
percent unless reduced by the application of a tax treaty.
Royalties received by Philippine citizens, resident alien individuals, nonresident alien

individuals engaged in trade or business in the Philippines are subject to a 20 percent
final withholding tax, except royalties from books, other literary works, and musical
compositions where the final withholding tax is 10%. Royalties received by nonresident
aliens not engaged in trade or business in the Philippines are subject to a final
withholding tax of 25 percent. The rate imposed on nonresident aliens may be reduced
by the application of a tax treaty.
Interest received by domestic and resident foreign corporations are normally

subject to a 20 percent final withholding tax, except that interest received from a
depositary bank under the expanded foreign currency deposit system shall be subject to
a final withholding tax of 7.5 percent. Interest on foreign loans received by nonresident

foreign corporations is subject to a 20 percent final withholding tax unless reduced by an
applicable tax treaty.
Interest received by Philippine citizens, resident alien individuals and nonresident

aliens engaged in Philippine trade or business are normally subject to a 20 percent final
withholding tax, except that interest received from a depositary bank under the expanded
foreign currency deposit system shall be subject to a final withholding tax of 7.5 percent.
Interest received by nonresident aliens not engaged in trade or business in the
Philippines is subject to a 25 percent final withholding tax. The rate imposed on
nonresident aliens may be reduced by the application of a tax treaty.
Treatment of Capital Gains
Capital gains realized by domestic, resident and non-resident foreign corporations are
generally subject to the normal corporate tax rate of 30 percent. Capital gains
realized by Philippine citizens, resident aliens and non-resident aliens engaged in trade
or business in the Philippines are generally subject to the progressive scale of 5 to 32
percent. Capital gains realized by nonresident aliens not engaged in trade or business
in the Philippines are subject to a 25 percent withholding tax.
Net capital gains realized by domestic corporations, resident foreign corporations and
nonresident foreign corporations are subject to a capital gains tax of 5 percent for net
capital gains not over PhP 100,000 and 10 percent on any amount in excess of
PhP 100,000. However, shares of stock which are treated as capital assets listed and
traded through the Philippine Stock Exchange are not subject to capital gains tax.
Instead, a transaction tax of ½ of 1 percent is imposed on the gross selling price or gross
value of the shares of stock sold. The same rule applies to Philippine citizens, resident
aliens and nonresident aliens (whether or not engaged in trade or business in the
Philippines).
Capital gains from the sale, exchange or disposition of real property treated as capital
assets of domestic corporations are subject to a 6 percent tax based on gross selling
price or fair market value of the real property sold, whichever is higher. The same rule
applies to Philippine citizens, resident aliens and nonresident aliens (whether or not
engaged in trade or business in the Philippines).
Foreign Tax Relief and Tax Treaties
The Philippine taxation system provides for comprehensive double taxation relief for
taxes incurred in territories outside the Philippines, both under the provisions of
Philippine tax laws and under double taxation agreements. Under the NIRC, a taxpayer
may elect to take a credit or deduction for foreign income tax. The amount of foreign tax
credit, however, is subject to conditions and limitations depending on the foreign country
to which the taxes were paid.
The Philippines currently has tax treaties with 35 countries, namely: Australia, Austria,
Bahrain, Bangladesh, Belgium, Brazil, Canada, China, Czech Republic, Denmark,
Finland, France, Germany, Hungary, India, Indonesia, Israel, Italy, Japan, Korea, Malaysia,
the Netherlands, New Zealand, Norway, Pakistan, Romania, Russia, Singapore, Spain,
Sweden, Switzerland, Thailand, the United Kingdom, the United States of America and
Vietnam.

Value Added Tax
Any person who, in the course of trade or business, sells, barters, exchanges, leases
goods or properties, renders services and imports goods shall be subject to VAT at the
rate of either 12 percent or zero percent. Some transactions are VAT exempt.
The VAT is imposed on the gross selling price or gross value in money of the goods or
properties sold, bartered or exchanged, or the gross receipts derived from the sale or
exchange of services, including lease of properties. In the case of importation, the tax is
based on the total value used by the Bureau of Customs (BOC) in determining tariff and
customs duties plus excise taxes and other charges, provided that where the customs
duties are determined on the basis of the quantity or volume of the goods, the VAT shall
be based on the landed cost plus excise taxes, if any.
VAT is an indirect tax which may be passed on to the buyer, transferee or lessee of
the goods, properties or services. A VAT payer is generally able to use the VAT on its
purchases (Input VAT) as a credit to offset its VAT liabilities arising from the sale of its
goods or service (Output VAT).
Zero rated transactions
If a transaction is categorized as zero rated for VAT purposes, the VAT-registered seller
is entitled to a refund or tax credit of input tax paid on his purchases related to the
zero-rated transaction. These transactions are:
• Export sales
• Foreign currency denominated sales
• Sales to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects such sales
to zero rate.
VAT-exempt transactions
If a transaction is categorized as an exempt transaction, the seller does not impose VAT
on the sale of the goods. It is also not able to use any VAT that it paid from its purchases
related to the exempt transaction as a credit against its Output VAT. Neither is the
taxpayer able to claim a refund for the Input VAT related to its VAT exempt sales.
Local Taxes
Local government units may create their own sources of revenue by levying taxes, fees,
and charges provided that the taxes so imposed are uniform, equitable, and devoted to
a public purpose which will inure to the benefit of the collecting local government unit.
Business transactions which may be subject to local taxation include manufacturers,
traders, exporters, banks, financial institutions, insurance companies, as well as contrac-
tors performing all kinds of services within the territorial jurisdiction of the collecting local
government unit, such as but not limited to general engineering services, publishing,
quarrying, dressmaking, lessors, retail or wholesale distributors, and persons engaged in
the exercise or practice of a profession requiring government examination.
Land and Property Taxes

Owners or administrators of land, as well as buildings and improvements erected
thereon, are assessed a property tax by the local government unit of the place
where the property is located. A percentage of the fair market value, based on the
classification of the property, is used as a tax base. The rates vary depending on the
locality and classification or use of the property being assessed. However, the total rates
shall not exceed 3 percent of the assessed value of the real property.

Philippine Trade and Customs Environment Articles previously exported from the
Philippines that did not undergo any
A 12 percent Value Added Tax is imposed processing abroad may also be imported
The primary enforcement agency with
on importations based on the landed cost free of duty subject to certain
respect to cross border trade is the
(i.e. value of goods + duties + excise + conditions.
Philippine Bureau of Customs (BoC).
post import charges)
Duty drawback and bonded
As a member of the World Trade
Regulated commodities warehousing
Organization (WTO), the country uses
the transaction value method as the
A number of commodities require Duties paid on imported materials that
primary basis for the valuation of
special permits and licenses from certain were used in the production of an
imported goods for customs purposes.
government agencies prior to their exported product may be reclaimed,
It is also a member of the World Customs
importation to Philippines. Examples of usually in the form of tax credit
Organization (WCO) and uses the
these are food and medicines, animal certificates. Customs bonded
Harmonized System for the tariff
products, plant products, refrigerators / warehouses are also available for export
classification of its imports and exports.
air-conditioners, and construction oriented enterprises to avail of duty
materials. exemptions on importer raw materials for
Although tariffs in the Philippines
their export production. Currently,
are already considerably low
Filing an import entry however, there is a prevailing moratorium
(having a weighted average tariff rate
on the establishment of additional bonded
of 3.2 percent in 2006), non-tariff
Import entries are filed with the BoC warehouses. Instead, companies may
barriers such as import restrictions,
regardless of whether the imported enlist for allocations under existing
import licensing requirements,
articles are subject to duties or not. Entries common bonded warehouses.
labeling, complex customs regulations,
and other administrative requirements should be covered by a verifiable evidence
of Free Trade Agreements
continue to remain a concern for
companies. payment (e.g. Letter of Credit). A customs
broker generally undertakes the filing The Philippines is party to various FTAs
process and accomplishes the Import which include the ASEAN Free Trade
Customs rules can be complex in the
Entry and Internal Revenue Declaration Agreement (AFTA), the ASEAN-China FTA,
Philippines and certain details can be
(IEIRD). Payment of duties and taxes are the ASEAN-Korea FTA, the ASEAN-
overlooked at the border which can later
usually coursed through authorized agent Australia/New Zealand FTA and the Japan-
on be uncovered during an audit, and
banks. Philippines Economic Partnership
result in substantial costs.
Agreement (JPEPA). Negotiations are
Current risks to companies underway for more possible FTA
The BoC is now more aggressively
arrangements which would offer lower
conducting post-entry audits in the
Philippine customs rules are complex, duty rates.
Philippines, but allows companies to
undertake a voluntary disclosure for a frequently amendedand, oftentimes,
subject to varying interpretations. The BoC In order to qualify for preferential duty
waiver of penalties.
Post Entry Audit Group is becoming more rates, a company must comply with the
active and is expected to issue more audit rules of origin for that particular FTA. These
Various duty savings opportunities may
notification letters to companies in the rules have varied criteria (e.g. regional
be leveraged in the Philippines from a
future. value added content, change in tariff
clear understanding of Customs rules
classification) which apply to
and practice.
Voluntary Disclosure Program different products under different FTAs.
Basis of Duties and Taxes
The BoC is currently extending an Investment Incentives
opportunity for companies that have not
Duties are assessed in the Philippines on
yet been audited to voluntarily disclose Companies that are registered with the
a Cost-Insurance-Freight (CIF) basis.
erroneous declarations and pay the Philippine Board of Investments (BOI) may
deficiency taxes and duties in order to be allowed to import capital equipment
The primary mode of customs
avail of a waiver of penalties and be and spare parts duty free if these are
valuation in the Philippines is the
granted least priority status in future audit pertinent to its registered business activity.
transaction value. Any doubts cast by
selections.
the BoC on the said value may lead to
Special Economic Zones
the use of other valuation methodologies Conditionally duty free
under the WTO appraisement hierarchy. importations
Export oriented locators in Special
Subject to certain conditions (among Economic Zones under the Philippine
Excise taxes apply to importation of
them the posting of bonds) a number of Economic Zone Authority (PEZA) are
certain commodities such as alcohol,
items may be imported free of duty into allowed to import raw materials and
cigarettes, fuel, and automobiles. The
the country such as exhibit pieces, capital equipment free of duties and taxes.
excise tax rate and base varies from
demonstration units, and articles for In order to be a locator, these enterprises
product to product.
repair to be re-exported thereafter. are required to export at least 70 percent
of their total production.

Transfer Pricing
Section 50 of Tax Code provides that in and Development. Accordingly, until
the case of two or more organization, the said transfer pricing regulations are
trades or businesses (whether or not issued, any and all concerns shall be
incorporated and whether or not organized resolved in accordance with the
in the Philippines) owned or controlled principles laid down by the said
directly or indirectly by the same interests, guidelines.
the Commissioner of Internal Revenue
is authorized to distribute, apportion or al- The BIR has also applied Section 50 of
locate gross income or deductions the Tax Code for inter-company loans or
between or among such organization, advances. Where one member of a
trade or business, if he determines that group of controlled entities makes a loan
such distribution, apportionment or al- or advances directly or indirectly, or
location is necessary in order to prevent otherwise becomes a creditor of another
evasion of taxes or clearly to reflect the member of such group, and charges no
income of any such organization, trade or interest, or charges interest at a rate
business. which is not equal to an arm’s-length
rate, the Commissioner of Internal
The Bureau of Internal Revenue (BIR) Revenue may make appropriate alloca-
has recognized that Section 50 places a tions to reflect an arm’s-length interest
controlled taxpayer in tax parity with an rate for the use of such loan or advance.
uncontrolled taxpayer by determining the The arm’s length interest rate shall be
arm’s-length price of inter-company the rate of interest which was charged or
transactions. would have been charged at the time the
indebtedness arose in independent
However, while Section 50 has been transaction with or between unrelated
cited as the basis for transfer pricing rules, parties under similar circumstances. All
to date, the Philippines does not have relevant factors will be considered,
transfer pricing regulations. The BIR has including the amount and duration of the
not imposed requirements in relation to loan, the security involved, the credit
transfer pricing documentation and/or standing of the borrower, and the interest
transfer pricing-related disclosures in the rate prevailing at the situs of the lender
tax returns. Neither has the BIR or creditor for comparable loans. For
conducted transfer pricing audits. purposes of determining the arm’s length
rate in domestic transactions, the inter-
Nevertheless, a draft of the transfer pricing est rate to be used is the Bank Reference
regulations has been made as early as Rate prescribed by the Bangko Sentral ng
2006. The draft is pending revisions. Pilipinas (the Philippine Central Bank).
Moreover, the BIR has stated that as a

matter of policy, it subscribes to the
Transfer Pricing Guidelines for
Multinational Enterprises and Tax
Administrations, issued by the
Organization for Economic Cooperation

Getting Listed in the
Philippine Stock Exchange
In this Chapter:
• Initial Public Offering

• Requirements
• Fees

Getting listed in the Philippine Stock Exchange (PSE) means being included in its
certified registry and being admitted for trading. Once listed, a private closed company
is transformed to a publicly-held and traded company. This means that the shares of the
company are offered for purchase by the public.
Public offering can be done either by primary or secondary listing. By primary

offering, shares are offered to the public for the first time and involves the original sales
of shares by the issuing company. Secondary offering, on the other hand, is the sale of
the shares of the company’s existing stock holders.
Shares can also be listed on trading boards without public offering.
Initial Public Offering

Initial Public Offering (IPO) refers to the first time tradable shares securities are sold or distributed to the public.
The PSE enforces rigorous rules and procedures in being listed in its registry. A company may opt to apply for listing in any of the three
(3) trading boards – First Board, Second Board, and Third Board. Listed below are the requirements, as specified by the PSE.
Minimum Offering
First Board Second Board SME Board
Unless otherwise provided by law or government regulation, the minimum offering to the public for initial The minimum offering to the public for initial
listing shall be based on the following schedule: listing shall be twenty percent (20%) of
the authorized capital stock. Provided, that
the existing shareholders prior to listing of
Market Capitalization Public Offer securities shall maintain fifty-one percent
Not exceeding Php 400M 33% or Php 50M whichever is higher (51%) ownership within the next three years
following listing date.
Over Php 400M to Php 1B 25% or Php 100M whichever is higher
Over Php 1B to Php 5B 20% of Php 250M whichever is higher
Over Php 5B to Php 10B 15% or Php 750M whichever is higher
Over Php 10B 10% or Php 1B whichever is higher
Requirements
General Requirements
Basic Guidelines

a. A track record of profitable operations a. The applicant company must demonstrate its The applicant company shall be evaluated based

for three (3) full fiscal years; or potential for superior growth to the PSE; on the following:
a. The integrity and capability of the company’s
b. A market capitalization of Php 500M, b. It must have an operating history of at least management and its controlling stockholders;
provided that it has a five-year operating one (1) year prior to its listing; and
history; or
b. The company’s prospects of further growth
c. At listing, the market capitalization of the and profitability;
c. Net tangible assets of Php 500M, company must be at least Php 250M.
provided that it has a five-year operating
c. The viability of the business and
history. sustainability of the projected earning
stream; and
d. The company’s lack of existing material

conflicts of interest.

Track Record Requirements
A company must have a cumulative consolidated pre-tax profit of at least None, but must demonstrate a The applicant company should
at least Php 50M and a minimum pre-tax profit of Php 10M for each of the potential for superior growth, have been operational for at least
three (3) full fiscal years immediately preceding the application for listing. through the submission of one (1) year with positive net
For purposes of this rule, pre-tax profit shall not include non-recurring Statement of Active Business operating income (income before
and extraordinary income, nor shall it be reduced by non-recurring and Pursuits and Objectives. interest, taxes, depreciation and
extraordinary loss. The applicant must further be engaged in materially the amortization-EBITDA) during the
same businesses and must have a proven track record of management last financial year.
throughout the last three (3) years prior to the filing of the application.
Exceptions to the three-year track record rule:

a. The applicant company has been operating for at least ten (10) years
prior to the filing of the application. The applicant company shall have a
cumulative pre-tax profit of at least Php 50M, excluding non-recurring
and extraordinary income and/or loss, for the last three (3) fiscal years
immediately preceding the application for listing. No net operating loss
must have been registered in the fiscal year immediately preceding the
filing of the application.
b. The applicant company is a newly formed holding company which uses

the operational track record of its subsidiary(ies). The company, however,
is prohibited from divesting its shareholdings in the said subsidiary(ies)
for a period of three (3) years from the listing of its securities. The
prohibition shall not apply if a divestment plan is approved by majority of
the applicant company’s stockholders.
Numerical Criteria
Authorized Capital Stock- Authorized Capital Stock- Minimum - Authorized Capital Stock-
Minimum - Php 400,000,000 Php 100,000,000 Minimum - Php 20,000,000
Maximum -Php 100,000,000
Subscription and Paid-up- Subscription and Paid-up-
Minimum - Php 100,000,000 Minimum - Php 25,000,000.00 Subscription and Paid-up-
Minimum - 25% of the ACS
Minimum Par Value - Condition on Paid-up: at least 75% of the paid-
Php 1 up must have already been disbursed to the * The applicant company should have net
project, venture or business referred to in the tangible assets of at least Php 5M. The net
business plan tangible assets requirement is not applicable
to information technology companies.
Minimum Par Value -
Php 1 Minimum Par Value -
Php 1
Operating History
For a track record of profitable operations - at least At least one (1) year prior to listing At least one (1) year from filing
three (3) full fiscal years prior to the filing of the
listing application if with track record. For a market
capitalization or net tangible assets of Php 500M -
at least five (5) years.
Listing Documents
Financial Statements
Audited FS for the last three (3) full fiscal years Audited FS for the last three (3) full fiscal years When applicable, audited FS for the last three (3)
of the company and its subsidiaries prepared by of the company and its subsidiaries prepared by full fiscal years of the applicant company and its
an independent auditor together with a schedule an independent auditor subsidiaries
of the aging of its accounts receivable

Statement of Active Business Pursuits and Objectives
Not required Statement of Active Business Statement of Active Business Pursuits

Pursuits and Objectives - detailed and Objectives - detailed report on its
report on its active business pursuits. active business pursuits. It shall describe
It shall describe the technical and the technical and commercial aspects
commercial aspects of the applicant of the applicant company’s business
company’s business operations. operations.
Active business pursuits is defined as Active business pursuits is defined as

the activities undertaken and will be the activities undertaken and will be
undertaken by the applicant company undertaken by the applicant company in
in order to advance its business. order to advance its business.
As a general rule, financial projections As a general rule, financial projections

are not required, but should there be are not required, but should there be
references made in the Statement to references made in the Statement to
future profits or losses, or any other future profits or losses, or any other
item that would be construed to item that would be construed to indicate
indicate forecasts, then the applicant forecasts, then the applicant company is
company is required to include required to include financial projections
financial projections in the Statement in the Statement duly reviewed by an
duly reviewed by an independent independent accounting firm.
accounting firm.
For listing applications received within
For listing applications received within the first three (3) quarters of the appli-
the first three (3) quarters of the cant company’s fiscal year, the period of
applicant company’s fiscal year, the discussion should cover the previous and
period of discussion should cover current fiscal years and the next two (2)
the previous and current fiscal years fiscal years. With respect to listing applica-
and the next two (2) fiscal years. tions received within the fourth quarter of
With respect to listing applications the applicant company’s fiscal year, the
received within the fourth quarter discussion should cover the previous and
of the applicant company’s fiscal current fiscal years and the next three (3)
year, the discussion should cover the fiscal years.
previous and current fiscal years and
the next three (3) fiscal years.

Requirements for Continuing Listing
a.Unstructured Reports
b.Structured Reports
1. 200 copies of the Annual Report (SEC Form 17-A) – 105 days after the end of the fiscal
year, or such other time as the SEC, by rule, shall prescribe
2. 200 copies of Quarterly Report (SEC Form 17-Q) – 45 days from end of the first three
quarters
3. One copy of the Annual list of Stockholders (should include the name of shareholders
with the corresponding number of shareholdings and its percentage to the total issued
and outstanding shares, address, nationality, and total number of stockholders) – within
five (5) trading days after the record date of the Annual Stockholders’ Meeting
4. One copy of the Top 100 Stockholders (should include the name of shareholders with
the corresponding number of shareholdings and its percentage to the total issued and
outstanding shares) – within 15 calendar days after the end of each quarter of the
calendar year
5. Duplicate original of other information, documents, and reports submitted to the SEC
Restrictions
As a general rule, a subsidiary or parent As a general rule, a subsidiary or parent company As a general rule, a subsidiary or parent company of an
company of an existing listed issuer will of an existing listed issuer will not be considered existing listed issuer will not be considered suitable for
not be considered suitable for listing if the suitable for listing if the assets and operations listing if the assets and operations of the applicant are
assets and operations of the applicant are of the applicant are substantially the same as substantially the same as those of the existing listed
substantially the same as those of the exist- those of the existing listed issuer. In arriving at issuer. In arriving at a decision, the PSE will consider
ing listed issuer. In arriving at a decision, the a decision, the PSE will consider the applicant’s the applicant’s business or commercial reasons for
PSE will consider the applicant’s business business or commercial reasons for listing. listing.
or commercial reasons for listing.
Others
A newly formed holding company which Holding companies or companies whose earnings 1. The PSE shall not allow the listing on the
invokes the operational track record of are derived exclusively from passive income are SME Board of any holding, portfolio, and
its subsidiary(ies) to qualify for the track not qualified to list under the Second Board. passive income company. For purposes of
record exception letter b, is prohibited this rule, holding, portfolio and passive income
from divesting its shareholdings in the company shall mean a company that confines its
said subsidiary(ies) for a period of three (3) activities to owning stocks in, and supervising
years from the listing of its securities. The management of other companies and whose
prohibition shall not apply if a divestment source of income are mainly dividends,
plan is approved by majority of the equitized earnings, and interest earnings from its
applicant company’s stockholders. investments; and
2. No change in primary purpose - the applicant

company shall not be allowed to change
its primary purpose stated in its Articles of
Incorporation for a period of five (5) years
following its listing. The PSE reserves the right
to delist listed companies whose objective(s)
and purpose(s) as stated in its Articles of
Incorporation submitted to the PSE have been
amended within the specified period.
3. No Offering of Secondary Securities - the

applicant company is prohibited from offering
secondary securities during the IPO. For
purposes of this rule, secondary securities shall
mean securities originally held by the existing
shareholders prior to IPO.
4. Non-waiving of Pre-Emptive Rights - the

applicant company’s Articles of Incorporation and
By-Laws shall explicitly provide for pre-emptive
rights of the stockholders, provided that, upon
listing, the company shall in no way secure
waiver of such rights from the stockholders by
way of a corporate action.

Fees
Processing Fees
Upon application, the applicant company shall pay a non-refundable processing fee of Php Upon application, the applicant company shall pay a
50,000 plus other incidental expenses. non-refundable processing fee of P20,000 plus other
incidental expenses.
Listing Fees
First Php 5B 1/10 of 1% or Php 500,000 whichever is higher Fixed listing fee of Php 50,000
Second Php 5B Php5M + 1/20 of 1% of excess over Php 5B If the company fails to pay within the prescribed
period, a surcharge of 25% plus 1% interest (based
Third Php 5B Php 7.5M + 1/30 of 1% of excess over Php 10B on the listing fee) for everyday of delay shall be
imposed.
Fourth Php 5B Php 9.166666M + 1/40 of 1% of excess over Php 15B
Excess Php 20B Php 10.416666M + 1/50 of 1% of excess over Php 20B
of market value of shares applied for listing based on
offer price
If the exact offer price is still to be determined from a price range set by the applicant company,
the maximum price in the price range shall be used as basis for the computation of the listing
fees. As soon as the exact offer price is determined, the PSE shall reimburse the excess amount
within 15 calendar days.
Applicant companies shall pay the listing fee as soon as practicable which in no case shall be
later than 15 calendar days from receipt of the Notice of Approval from the PSE. If the applicant
company fails to pay within the prescribed period, the applicant company shall incur a surcharge of
25% plus 1% interest (based on the listing fee) for every day of delay.
Annual Listing Maintainance Fees

1/100 of 1% of market capitalization as of the last trading day of the immediately Php 100.00 for every Php 1M market capitalization
preceding year, but in no case to be less than Php 200,000.00 nor more than Php 1M for of listed shares as of the last trading day of the im-
each listed company. mediately preceding year, but in no case shall it be
less than Php 20,000 nor more than Php 200,000.
To be paid on or before January 15 of each year, with an allowable grace period of one
week. The listed company shall be assessed a fine of
Php 1,000.00 for every calendar day of delay. If
The listed company shall be assessed a fine of Php 1,000.00 for every calendar day of the company fails to remit the maintenance fee by
delay. If the company fails to remit the maintenance fee by February 15 of that same February 15 of that same year, the PSE shall dis-
year, the PSE shall discontinue assessing the company the fine but it shall automatically continue assessing the company the fine but it shall
suspend the company from trading for two (2) months or until April 15. If the listed automatically suspend the company from trading for
company still fails to pay the required fee after April 15, the listed company shall be two (2) months or until April 15. The company shall
considered for delisting in accordance with the Delisting Rules of the Exchange. be delisted without prejudice to the payment of the
proportionate maintenance fees of the PSE.
Annual Maintainance Fee for Subscription Warrants

The annual maintenance fee for Subscription Warrants shall be based on the total funds which would be
raised from the full exercise of the warrants, to wit:
Percentage of Existing Issued Share Capital Subject Total Funds Which Would be Raised on Full Exercise
to To Warrants of the Warrants
Not Exceeding Not Exceeding Php 1B Above Php 1B
Php 500M
Not exceeding 10% Php 150,000 Php 250,000 Php 300,000
Over 100% Php 300,000 Php 400,000 Php 600,000
* NOTE: All fees indicated are exclusive of VAT.

Business and economic
Overview
In this Chapter:
• Overview of Economic Indicators

• 2009 Economic Performance
• 2010 Economic Forecast
• Peso-Dollar Exchange
• Interest Rates
• Inflation Rates
• 2010 Economic Projection

Overview of Economic Indicators
2009 Official Economic Performance
• GDP : $158.7 billion (2009)
• Real GDP growth rate: 0.9%
• GDP per capita : $3,300 (2009 )
• Trade: Exports - $36.18 billion (2009)

Imports - $46.12 billion (2009)
Source: CIA World Factbook
2009 Economic Performance

The Philippine Economy generally slowed down in 2009. After achieving the highest real
GDP growth of 7.1 percent in over three decades, growth decelerated to 0.9 percent in
2009.
The Philippines, despite the 2009 global financial crisis showed incredible resilience and
showed growth reflecting a 4.6 percent growth rate at the end of 2009, albeit unlike
many of its more export-dependent Asian peers. Even as the global economic crisis
deepened, the Philippines economy avoided recession. Annual real GDP growth though
it slowed to the lowest of 0.6 percent lin the first quarter of 2009 gradually grew and
finished at .9 percent at the end of 2009.
In July 2009, the sovereign rating for the Philippine economy was raised by Moody
from B1 to B3 which has a more stable outlook. This in turn boosted confidence in the
economy.
The Philippines’ resilience to the crisis stemmed from a number of factors. First, even
amidst the global crisis, remittances from overseas Filipino workers grew by 5.6
percent to US $17.3 Billion at the end of 2009. This in turn boosted consumer spending.
Second, the short duration of the global crisis meant that lagged negative effects such
as a projected rise in worker retrenchments did not occur. Third, new sources of growth
such as business process outsourcing, helped sustain the Philippines’ momentum of
growth. The export sector on the other hand with its heavy reliance on globally sensitive
technology cycle suffered a sizable downturn.
2010 Economic Situation

The country’s economic prospects are set to improve in 2010-2011.
The Philippine government forecasts GDP growth at 2.6 percent to 3.6 percent while the
World Bank forecasts a 3.5 percent GDP growth for the Philippines
Early in the year, the economy would be experiencing a boost due to the reconstruction
activities caused by the series of devastating typhoons that the country has
experienced in October of 2009.
A bounce in consumer spending occured in Second Quarter due to the presidential

and congressional elections in May 2010. This mainly was due to the amount of money
political parties infuse into the household sector.

OFW remittances are expected to
continue strong this year due to the global
recovery and the high demand for skilled
Filipino workers abroad.
An increase in income from the Business

Process Outsourcing sector is also
foreseen due to a number of companies
abroad seeking to reduce their costs by
outsourcing their back office work to
countries like the Philippines.
The Business Process Outsourcing

Association of the Philippines states that
the BPO industry in the Philippines is ex-
pected to grow from its current 4 percent
of the world market share in outsourced
services to 10 percent in 2010.
Peso-Dollar Exchange
2009 Performance
First Quarter
On a year-on-year basis, the peso depreciated by as much as 14.1 percent. However,

quarter-on-quarter, the peso appreciated in the first quarter of 2009 by 1.4 percent to
average PhP47.75/US$1, from PhP48.44/US$1 in the previous quarter. The relatively
strong performance of the peso, which started in December 2008, continued through the
first quarter of 2009, largely on account of continued inflows of OF remittances despite
the recession in developed countries and emerging economies hosting Filipino workers.
Second Quarter
The peso depreciated slightly by 0.3 percent to average PhP47.9/US$1 in the second
quarter of 2009 from PhP47.8/US$1 in the previous quarter. On a year-on-year basis,
the peso weakened by 10.2 percent compared to the PhP43.0/US$1 average in the
same quarter in 2008. Despite sustained OF remittances and the slowdown of
recessionary pressures from major economies during the review period, concerns about
the prospects of a weaker growth, widening fiscal deficit and the political noise on moves
to amend the Philippine constitution, have dragged the peso down during the review
quarter
Third Quarter
. The peso depreciated slightly by 0.6 percent to average PhP48.15/US$1 in the third
quarter of 2009 from PhP47.88/US$1 in the previous quarter. On a year-onyear basis, the
peso weakened by 5.4 percent compared to the PhP45.53/US$1 average in the same
quarter in 2008. Despite the sustained OFs’ remittances and the increasing risk appetite
for emerging markets’ assets following reports of a better-than-expected U.S. real GDP
growth during the review period, concerns about the widening fiscal deficit have dragged
down the peso during the review quarter.
Fourth Quarter
The peso appreciated by 2.9 percent to average PhP46.77/US$1 in Q4 2009 from

PhP48.15/US$1 in the previous quarter.27 On a year-on-year basis, the peso
strengthened by 3.4 percent relative to the PhP48.44/US$1 average in Q4 2008. The
peso appreciated on improved risk appetite for high-yielding emerging market assets due
to expectations that their economies will recover ahead of advanced economies. Strong
dollar inflows from remittances of OFs as well as the sustained inflows of foreign direct
and portfolio investments likewise provided support to the peso.
Source: BSP Report on Economic and Financial Developments 2009 www.bsp.gov.ph

2010 Outlook
The Union Bank of Switzerland (UBS)

in July 2009 raised its forecast for the
Philippine Peso to PhP46 to the US Dollar
from its previous forecast of PhP48 to the
US Dollar.
The revised forecast is within the the

Philippine government’s foreign exchange
forecast of PhP46 to PhP 48 to the US
Dollar for 2010. The UBS also noted that
the Philippine peso is likely to outperform
the Singapore dollar and the Malaysian
ringgit.
According to the UBS, current account

surpluses, along with comparative
leniency on the part of central banks
towards currency appreciation, could allow
for relatively more strength against the US
Dollar by the end of 2010 for the Thia bath
and the Philippine peso than the Singapore
dollar and Malaysian ringgit.
The Philippines is likely to sustain its

current account surplus on the continued
dollar inflows, though the surpluses may
diminish in size.
Inflation Rates
2009 Performance
Average inflation for 2009 falls within target range, even as Q4 inflation increases.
Headline inflation for 2009 averaged lower at 3.2 percent, well within the Government’s
target of 2.5-4.5 percent. Favorable developments in food and energy-related items in the
first three quarters of 2009 sustained the inflation downtrend which started in Q4 2008.
However, inflation rose in Q4 2009 as weather-related disturbances led to higher prices of
food products and as the price of oil increased in the global market. Higher inflation path
in Q4 was also partly statistical as base effects which contributed to low inflation read-
ings during the earlier part of theyear have started to diminish. Meanwhile, core inflation
reflected a downtrend for five consecutive quarters starting Q4 2008 to reach 2.9 percent
in Q4 2009 indicating modest demand-side price pressures.
The prevailing inflation outlook likewise indicates within-target inflation over the
policy horizon, with near-term price pressures expected to remain manageable.
Inflation is expected to track a target-consistent path over the policy horizon, with the
latest baseline inflation forecasts for both 2010 and 2011 only slightly higher than the
forecast in the previous Inflation Report. Risks to domestic inflation are tilted slightly
upwards. On the one hand, potential sources of domestic inflationary pressures include
supply tightness in key agricultural products, and the pending adjustments in domestic
power charges. The impact of the El Niño weather conditions on domestic food supply
could also add some pressure on inflation in the near term. On the other hand,
downside price pressures are expected to stem from the modest improvement in
domestic demand, and well-contained inflation expectations. Large foreign exchange
inflows, including from overseas Filipinos’ remittances and foreign investments, could
help stabilize the value of the peso and in the process, help contain price pressures from
imported commodities.

Global price developments relate mainly to the outlook for global economic
activity and developments in world commodity prices.
Global inflationary risks are expected to be manageable as some major central banks
have signaled their strong commitment to safeguard price stability by preemptively
considering the disengagement from crisis intervention measures. At the same time,
economic fundamentals, such as moderate improvement in consumer demand,
above-average inventory levels and elevated spare capacity are expected to weigh down
on global price developments. However, an improvement in market sentiment may
prompt a rebound in private demand for advanced economies and pose upside risks to
global inflation. In addition, structural weaknesses in the investment and
operational environment in the oil and agriculture sectors suggest possible resurgence in
commodity prices in the near term once global demand fully recovers.
2010 Inflation Forecast
The current forecast of the Bangko Sentral ng Pilipinas is 3.5 percent to 5.5 percent infla-
tion this year and 3 percent to 5 percent in 2011.
Lower oil prices may prompt the Bangko Sentral ng Pilipinas (BSP) to downgrade its
forecast for 2010’s inflation rate to 4 percent from the present 4.7 percent because of the
lower-than-expected inflation rate in January, and the moderation in oil prices in January
and February
Another factor that may affect the inflation rate this year is the prolonged dry spell being
experienced by the country. The drought might cause a tightening of policy rates due to
the havoc its wreaking on crops.
Source: Quarterly Inflation Reports 2009 Bangko Sentral ng Pilipinas.

www.bsp.gov.ph
2010 Economic Projection

Fiscal policy will likely be less stimulative in 2010, given budget constraints and plans by the current administration to trim the
fiscal deficit to 3.5 percent of GDP. Spending on social services is budgeted to rise (in nominal terms), but the amount set aside for
infrastructure is lower than last year. There are risks on the revenue side. More tax exemptions were approved early in 2010, and
additional tax breaks are proposed, even though the country’s low tax collection is a chronic constraint on the budget.
Monetary policy is expected to support the recovery while the authorities gradually unwind the liquidity-boosting measures put in place
during the global financial crisis. The central bank increased the lending rate to banks under a rediscounting facility and reduced the size
of its peso rediscounting window in the first quarter of 2010.
Private consumption will likely remain the main driver of growth in the next 2 years, underpinned by remittances (expected by the
central bank to rise by about 6 percent in 2010), a firmer labor market, and stronger consumer confidence. Election-related spending will
provide a boost through May. Exports will grow in line with the global recovery and, on a net basis, are expected to contribute modestly
to GDP growth.
Investment is forecast to rebound from last year’s low levels now that the external and domestic outlooks have improved. Investment
pledges reported by government agencies in the fourth quarter of 2009 nearly trebled from the prior-year period, and the index of
business confidence rose to a two year high in the first quarter of 2010. Property companies have laid out aggressive expansion plans
to meet anticipated strong demand for office space, mainly from business process outsourcing firms, and for housing (stimulated by
remittances and low interest rates).
Services benefited from stronger growth in private consumption as well as election-related spending. Higher levels of external trade
will continue, more specifically, to stimulate wholesale trade, storage and transport. The association representing business process
outsourcing firms expects that growth in the industry’s revenue this year will exceed last year’s 19 percent gain. Rapid expansion has
raised employment in outsourcing to about 450,000 from about 100,000 over the past five years, and some firms are extending into
more value-added services fields.

Manufacturing is projected to recover gradually in tandem with the improvement in external demand, particularly for electronic
products. Agriculture, still rebuilding after last year’s storms, was hit by an El Nino drought in the early months of 2010, which curtailed
crop yields in some areas. The government planned rice imports of 2.4 million tons in 2010 (up from 1.8 million tons in 2009), but it
might need to raise this target.
The drought has also reduced hydropower output. Electricity supplies for the largest island of Luzon, which accounts for about two-
thirds of GDP, were interrupted in the first quarter when a lack of rain for hydropower coincided with maintenance shutdowns and
technical problems of other plants. Mindanao, the second-largest island, has been worse hit because hydropower accounts for about
55 percent of its electricity supplies.
On drawing these strings together, GDP is forecast to increase by 3.8 percent in 2010, still below potential and under the 5.5 percent
recorded in 2004–2008.
Growth is seen accelerating to 4.6 percent in 2011, when a stronger global recovery is expected to give impetus to exports and
remittances. The forecast is subject to more uncertainty than usual, since the new administration’s economic and fiscal policies will
have an important bearing on the momentum of growth.
Inflation is forecast to rise to 4.7 percent this year, owing to the impact of the drought, which is putting some upward pressure on food
prices, and higher prices for imported oil and commodities. Electricity charges look set to increase as producers seek to cover rising
costs, and suppliers turn to more expensive oil-based power generation to compensate for shortfalls in hydropower. Inflation averaged
4.2 percent in the first 2 months of 2010.
External trade will be considerably stronger this year. Merchandise exports surged by nearly 43 percent and imports by 30 percent in
January 2010 (both from lows bases in the prior-year month). For the full year, growth of imports will likely outpace exports, widening
the trade deficit. Taking into account higher remittances and business process outsourcing income, the current account is expected to
record a surplus, although it will moderate from 2009 to around 3.3 percent of GDP in 2010–2011.
In the context of improved global financial market conditions, the government raised US$2.6 billion from bond issues overseas in the
first 2 months of 2010, securing about half its external borrowing target for 2010. The authorities also plan to issue bonds targeted at
overseas Filipino workers. Borrowing costs for external debt have broadly declined to levels ruling before the financial crisis. Moody’s
upgraded its sovereign credit rating for the Philippines in July 2009, from B1 to Ba3, citing the resilience of the financial system and of
the external payments position during the global recession.
Risks to the forecasts come from the impact on agriculture and food prices of a more severe El Nino, and the impact on trade and
growth from slower than projected recovery in the global economy. Significant fiscal slippage could unsettle financial markets and raise
the country’s risk premium. It will be important that the new government commit to a medium-term plan to strengthen the fiscal posi-
tion.
Source: Asian Development Outlook 2010 p.219-221

Foreign Trade and
Investments
In this Chapter:
• Philippine Foreign Trade Performance

• Foreign Direct Investments
• Portfolio Investments
• Investment Climate
• Basic Rights and Guarantees of Investors
• Foreign Exchange Regime
• Limitations of Foreign Investments

Philippine Foreign Trade Performance
2009 Performance
Reflecting the slowdown in external demand, merchandise exports in nominal US dollars fell by 2.6 percent in 2008 for the first
contraction since 2001. In December, as the global downturn deepened, exports plunged by 40.3 percent year on year. They declined
across all major product categories, with electronic products (about 60 percent of total merchandise exports) down by 8.3 percent in
2008 and clothing down by 15.5 percent. Merchandise imports nudged up by about 5.0 percent, driven by high world commodity prices
for much of the year. The cost of crude oil imports (12.3 percent of total merchandise imports) shot up by 30.8 percent, while the cost
of rice imports (about 3%) trebled from 2007’s level. However, imports of capital goods declined by 4.2 percent, a sign of the weakness
in investment.
These developments propelled the trade deficit to US$12.6 billion, from US$8.4 billion a year earlier. Inflows of remittances helped keep
the current account in surplus, although that surplus fell to US$4.2 billion (2.5% of GDP). The surplus in the capital account likewise was
sapped by portfolio investment outflows, and inflows of foreign direct investment fell to US$1.5 billion. The overall balance-of-payments
surplus was $89 million, down from a record $8.6 billion in 2007.
Total external trade in goods for January to December 2009 reached US$81.338 billion, a 23.1 percent decline from US$105.824 billion
registered during the same month in 2008. Total imports posted a 24.2 percent annual decrease from US$56.746 billion to US$43.004
billion. Similarly, total exports fell by 21.9 percent from US$49.078 billion in January to December of 2008 to US$38.335 billion. Thus,
the balance of trade in goods (BOT-G) for the Philippines posted a deficit of US$4.669 billion during the 12-month period in 2009, a value
less than the US$7.669 billion deficit in the same 12-month period last year.
Combined import and export merchandise trade for December 2009 improved by 20.6 percent to US$7.204 billion from US$5.976
billion in December 2008. This was due to the double-digit increase in total merchandise imports by 17.9 percent to US$3.892 billion
from US$3.301 billion in December 2008. Total exports likewise rose by 23.8 percent to US$3.312 billion from US$2.675 billion. The
balance of trade in goods (BOT-G) in December 2009 recorded a deficit of US$579 million, higher than the last year’s recorded deficit of
US$626 million. Similarly, on a month-on-month basis, total imports for December 2009 increased by 7.3 percent from US$3.626 billion
recorded in November 2009.
Source: Asian Development Bank Asian Development Outlook 2009. www.adb.org

Foreign Direct Investments
• Total approved foreign direct investments (FDI) picked up in the fourth quarter of
2009 from four consecutive quarters decline.
• Japan was the top source of approved FDI in the fourth quarter of 2009 as it
contributed 72.1 percent of the total FDI commitments valued at PhP63.1 billion.
Trailing far behind are the United States of America (USA) and Korea pledging PhP7.6
billion and PhP3.9 billion which accounted for 8.7 percent and 4.5 percent respectively
of the total FDI committed during the last quarter of 2009.
• Manufacturing, a consistent top recipient of FDI commitments, again bested all other
industries as it stands to receive 84.5 percent of the total approved FDI for the
quarter or PhP74.0 billion worth of investments. The rest of the investment pledges
were shared by finance and real estate, accounting for 6.5 percent or PhP5.7 billion;
water, particularly projects on water supply and distribution at 3.1 percent or PhP2.8
billion; agriculture at 2.7 percent or PhP2.4 billion; and private services at 2.0 percent
or PhP1.7 billion
• FDI projects approved in the fourth quarter of 2009 are expected to generate a total
of 81,595 jobs, expanding by 291.7 percent from last year’s projected employment of
20,830 jobs
• Actual FDI in the BOP for October to November 2009 reached US$141.0 million, 4.7
percent lower than last year’s net FDI inflow of US$148.0 million
• The combined investment commitments of foreign and Filipino investors reached

PhP196.6 billion in the fourth quarter of 2009, three times the PhP73.9 billion
committed in the same period in 2008. Prospective ventures from both foreign and
Filipino nationals posted significant increases, expanding by 309.3 percent and 107.7
percent, respectively
• Proposed investments in ICT of foreign and Filipino nationals weakened during the
quarter as it dropped by 29.7 percent from PhP 4.3 billion in 2008 to PhP3.0 billion.
Foreign nationals continued to dominate investment commitments in ICT with 80.0
percent share to total approved ICT investments. Filipino nationals only contributed
PhP 604.6 million during the quarter from PhP 168.2 million
• The ICT industry accounted for 1.5 percent of the total approved investments of foreign
and Filipino nationals during the quarter.
Source: National Statistics Coordination Board www.nscb.gov.ph
Portfolio Investments
Foreign portfolio investments posted a net inflow of $415.3 million as of December 2009 as
foreign investors remained upbeat on the Philippine market, data from the Bangko Sentral
ng Pilipinas (BSP) showed.
The figure was a complete turnaround from the $1.77 billion net outflow registered in the
same period last year or during the height of the financial crisis in the US.
Inflows amounted to $6.2 billion as of December 2009 or 24.7 percent lower than the $8.24
billion inflows registered in the same period last year.
Major sources of portfolio investments during the period were the US, the United
Kingdom, Singapore, Japan, and Luxemburg.
BSP officials said foreign investors remained upbeat on the Philippine market on account of
the sustained growth in overseas Filipino remittances and gross international reserves (GIR).

The BSP now sees the country’s GIR hitting a new record high of between US$44.5 billion and US$45 billion instead of
US$43 billion to US$44 billion this year with the disbursement of additional loans from multilateral lending agencies.
The GIR is the sum of all foreign exchange flowing into the country and the balance of payment position is the remaining balance net
of all external payments for debt servicing and imports.
As of December 2009, data from the BSP showed that the GIR hit a new record high of US$43.73 billion in end-November or about
US$500 million higher than the US$43.2 billion registered in end-October.
The current reserves could cover 8.1 months of imports of goods and payments of services and income. It is also equivalent to 9.2
times the country’s short-term external debt based on original maturity and four times based on residual maturity falling due in the next
12 months.
The officials also cited stable prices and interest rates helping erase the impact of the deterioration in the country’s fiscal position and
drop in export receipts.
Statistics showed that outflows reached US$5.79 billion as of December 2009 or 42.2 percent lower than the US$10.01 billion
portfolio investments that were pulled out of the Philippines in the same period last year.
The outflows consisted mainly of withdrawals from interim peso deposits wherein the US accounted for about 95 percent of the
outward remittances.
The BSP sees a net inflow of US$3 billion instead of only US$600 million this year from a net outflow of US$1.78 billion last year. Last
year, investment outflows amounted to US$10.1 billion versus an inflow of US$8.32 billion in 2007.
Investment Climate
All investments are welcomed favorably in the Philippines. However, limitations are placed on the extent of foreign ownership on
enterprises engaged in certain economic activities.
Major laws on investments include the Omnibus Investments Code, the Foreign Investments Act, and Special Economic Zone Act. The
Omnibus Investments Code (Executive Order No. 226 or the Investments Code), which was enacted in 1987, consolidated all laws on
investments in the Philippines. The Investments Code was enacted to encourage investments in preferred economic areas by extending
fiscal incentives and other benefits. A set of amendments to the Code, which is expected to bring in more investments to the country,
was set as priority legislation.
Republic Act No. 7042 (RA 7042) or the Foreign Investments Act (FIA) was enacted in 1991 in recognition of the vital role that foreign
capital plays in the country’s economic development. The FIA, which seeks to encourage foreign investments in areas that contribute
to the development of the Philippines, prescribed procedures for registration of enterprises doing business in the Philippines, and other
regulations.
The Special Economic Zone Act of 1995 (RA 7916) was enacted in 1995 to promote investments in the countryside. Enterprises located
in these economic zones are entitled to fiscal incentives and other benefits.

Basic Rights and Guarantees of Investors
Under the Investments Code, all investors and registered enterprises are entitled to the
following basic rights and guarantees, subject to the guidelines of the BSP:
• Right to repatriate the entire proceeds of liquidation of the investment
• Right to remit profits, capital gains and dividends
• Right to obtain foreign exchange to meet foreign exchange obligations
• Freedom from expropriation by the government of the property without just

compensation
• Freedom from requisition of the property represented by the investment or of the

property of enterprises without just compensation.
Foreign Exchange Regime

Generally, the Philippines has adopted a liberal foreign exchange regime. Unless the
foreign exchange are proceeds of an unlawful activity, any natural person or legal entity
may remit to or from the Philippines any amount of foreign exchange that it already
possesses or which are purchased from sources other than the Philippine banking
system. Depending on the amount of foreign exchange, the transferor may need to
comply with rules on the declaration of the remittance.
Upon registration, the BSP will issue a Bangko Sentral Registration Document (BSRD)
for each investment registered. The BSRD may be used to purchase foreign currency
from the banking system for the dividend or profit distribution or for divestment without
need of approval from the BSP. Foreign borrowings of the private sector require prior
approval by and registration with the BSP is required if these loans will be serviced with
foreign exchange sourced from the Philippine banking system. Foreign loans refer to
all obligations (whether given in cash or in kind) owed by Philippine residents to
non-resident entities, including advances from foreign parent companies and affiliates.
Generally, approval of foreign loans are granted for those classified by the BSP as eligible
projects. These include
• Export-oriented projects
• Board of Investments-registered projects
• Projects listed in theInvestment Priorities Plan
• Projects listed in the Medium-Term Public Investment Program and
• Other projects that may be declared priority by the National Economic and
Development Authority, Congress, or the Monetary Board.
The BSRD is issued by the BSP upon the applicant’s submission of the prescribed
registration documents and compliance with the terms and conditions of the BSP
approval of the loan, including utilization of loan proceeds which should be in
accordance with the approved purpose/project. The BSRD will allow the borrower to
purchase foreign exchange from the Philippine banking system to service the
approved and registered foreign loan.
• The private sector may generally purchase foreign exchange from the Philippine
banking system to finance the importation of goods or the payment of other costs
of doing business such as service fees, consultancy fees, shipping expenses, royalty
payments, salaries of expatriate employees and similar expenses without need of
prior approval or registration of the transaction with the BSP. However, BSP
regulations require such purchaser of foreign exchange to exhibit documentary
support of the transaction and proof that any applicable withholding taxes have
been paid.

Limitations of Foreign Investments
SEVENTH REGULAR FOREIGN INVESTMENT NEGATIVE LIST
LIST A. FOREIGN OWNERSHIP IS LIMITED BY MANDATE OF THE CONSTITUTION AND SPECIFIC LAWS
No Foreign Equity
1. Mass media except recording (Art. XVI, Sec. 11 of the Constitution; Presidential Memorandum dated 04 May 1994)
2. Practice of all professions

a. Engineering c. Accountancy
i. Aeronautical engineering d. Architecture
ii. Agricultural engineering e. Criminology
iii. Chemical engineering f. Chemistry
iv. Civil engineering g. Customs brokerage
v. Electrical engineering h. Environmental planning
vi. Electronics and communication engineering i. Forestry
vii. Geodetic engineering j. Geology
viii. Mechanical engineering k. Interior design
ix. Metallurgical engineering l. Landscape architecture
x. Mining engineering m. Law
xi. Naval architecture and marine engineering n. Librarianship
xii. Sanitary engineering o. Marine deck officers
b. Medicine and allied professions p. Marine engine officers

i. Medicine q. Master plumbing
ii. Medical technology r. Sugar technology
iii. Dentistry s. Social Work
iv. Midwifery t. Teaching
v. Nursing u. Agriculture
vi. Nutrition and dietetics v. Fisheries
vii. Optometry
viii. Pharmacy
ix. Physical and occupational therapy
x. Radiologic and x-ray technology
xi. Veterinary medicine
(Art. XII, Sec. 14 of the Constitution; Sec. 1 of RA 5181)

3. Retail trade enterprises with paid-up capital of less than U$$2,500,000 (Sec. 5 of RA 8762) Full foreign participation is allowed for retail trade
enterprises:
(a) with paid-up capital of US$2,500,000 or more provided that investments for establishing a store is not less than US$830,000; or
(b) specializing in high end or luxury products, provided that the paidup capital per store is not less than US$250,000
4. Cooperatives (Ch. III, Art. 26 of RA 6938)
5. Private security agencies (Sec. 4 of RA 5487)
6. Small-scale mining (Sec. 3 of RA 7076)
7. Utilization of marine resources in archipelagic waters, territorial sea, and exclusive economic zone as well as small-scale utilization of
natural resources in rivers, lakes, bays and lagoons (Art. XII, Sec. 2 of the Constitution)
8. Ownership, operation, and management of cockpits (Sec. 5 of PD 449)

9. Manufacture, repair, stockpiling and/or distribution of nuclear weapons
(Art. II, Sec. 8 of the Constitution)
10. Manufacture, repair, stockpiling and/or distribution of biological, chemical and radiological weapons and anti-personnel mines (various
treaties to which the Philippines is a signatory and conventions supported by the Philippines)
11. Manufacture of firecrackers and other pyrotechnic devices (Sec. 5 of RA 7183)
Up to Twenty Percent (20%) Foreign Equity

12. Private radio communications network (RA 3846)
Up to Twenty-Five Percent (25%) Foreign Equity

13. Private recruitment, whether for local or overseas employment (Art. 27 of PD 442)
14. Contracts for the construction and repair of locally-funded public works
(Sec. 1 of Commonwealth Act No. 541, Letter of Instruction No. 630) except:
a. Infrastructure/development projects covered in RA 7718; and
b. Projects which are foreign-funded or assisted and required to undergo international
competitive bidding (Sec. 2 (a) of RA 7718).
15. Contracts for the construction of defense-related structures (Sec. 1 of CA 541)
Up to Thirty Percent (30%) Foreign Equity

16. Advertising (Art. XVI, Sec. 11 of the Constitution)
Up to Forty Percent (40%) Foreign Equity

17. Exploration, development and utilization of natural resources (Art. XII, Sec. 2 of the Constitution)
Full foreign participation is allowed through financial or technical assistance agreement with the President
18. Ownership of private lands (Art. XII, Sec. 7 of the Constitution; Ch. 5, Sec. 22 of CA 141; Sec.4 of RA 9182)
19. Operation and management of public utilities (Art. XII, Sec. 11 of the Constitution; Sec. 16 of CA 146)
20. Ownership/establishment and administration of educational institutions (Art. XIV, Sec. 4 of the Constitution)
21. Culture, production, milling, processing, trading excepting retailing, of rice and corn and acquiring, by barter, purchase or otherwise,
rice and corn and the byproducts thereof (Sec. 5 of PD 194;Sec. 15 of RA 8762) Full foreign participation is allowed provided that within
the 30-year period from start of operation, the foreign investor shall divest a minimum of 60 percent of their equity to Filipino citizens
(Sec. 5 of PD 194; NFA Council Resolution No. 193 s. 1998)
22. Contracts for the supply of materials, goods and commodities to government-owned or controlled corporation, company, agency or
municipal corporation (Sec. 1 of RA 5183)
23. Project Proponent and Facility Operator of a BOT project requiring a public utilities franchise (Art. XII, Sec. 11 of the Constitution;
Sec. 2a of RA 7718)
24. Operation of deep sea commercial fishing vessels (Sec. 27 of RA 8550)
25. Adjustment Companies (Sec. 323 of PD 612 as amended by PD 1814)
26. Ownership of condominium units where the common areas in the condominium project are co-owned by the owners of the separate
units or owned by a corporation (Sec. 5 of RA 4726)
Up to Sixty Percent (60%) Foreign Equity

27. Financing companies regulated by the Securities and Exchange Commission
28. Investment houses regulated by the SEC

(Sec. 6 of RA 5980 as amended by RA 8556; PD 129 as amended by RA 8366) No foreign national may be allowed to own stock in
financing companies or investment houses unless the country of which he is a national accords the same reciprocal rights to Filipinos

LIST B. FOREIGN OWNERSHIP IS LIMITED FOR REASONS OF SECURITY, DEFENSE, RISK TO HEALTH AND MORALS AND PROTECTION OF
SMALL- AND MEDIUM-SCALE ENTERPRISES
Up to Forty Percent (40 %) Foreign Equity

1. Manufacture, repair, storage, and/or distribution of products and/or ingredients requiring
Philippine National Police (PNP) clearance:

a) Firearms (handguns to shotguns), parts of firearms and ammunition therefor, instruments or implements used or intended to be
used in the manufacture of firearms
b) Gunpowder
c) Dynamite
d) Blasting supplies
e) Ingredients used in making explosives:
i. Chlorates of potassium and sodium
ii. Nitrates of ammonium, potassium, sodium, barium, copper (11), lead (11), calcium and cuprite
iii. Nitric acid
iv. Nitrocellulose
v. Perchlorates of ammonium, potassium and sodium
vi. Dinitrocellulose
vii. Glycerol
viii. Amorphous phosphorus
ix. Hydrogen peroxide
x. Strontium nitrate powder
xi. Toluene
f) Telescopic sights, sniper scope and other similar devices
However, the manufacture or repair of these items may be authorized by the Chief of the PNP to non-Philippine nationals; Provided that a
substantial percentage of output, as determined by the said agency, is exported. Provided further that the extent of foreign equity ownership
allowed shall be specified in the said authority/clearance (RA 7042 as amended by RA 8179)
2. Manufacture, repair, storage and/or distribution of products requiring Department of National Defense (DND) clearance:
a) Guns and ammunition for warfare

b) Military ordnance and parts thereof (e.g., torpedoes, depth charges, bombs, grenades, missiles)
c) Gunnery, bombing and fire control systems and components
d) Guided missiles/missile systems and components
e) Tactical aircraft (fixed and rotarywinged), parts and components thereof
f) Space vehicles and component systems
g) Combat vessels (air, land and naval) and auxiliaries
h) Weapons repair and maintenance equipment
i) Military communications equipment
j) Night vision equipment
k) Stimulated coherent radiation devices, components and accessories
l) Armament training devices
m) Other as may be determined by the Secretary of the DND
However, the manufacture or repair of these items may be authorized by the Secretary of the DND to non-Philippine nationals; Provided that a
substantial percentage of output, as determined by the said agency, is exported. Provided further that the extent of foreign equity ownership
allowed shall be specified in the said authority/clearance (RA 7042 as amended by RA 8179).
3. Manufacture and distribution of dangerous drugs

4. Sauna and steam bathhouses, massage clinics and other like activities regulated by law because of risks posed to public health and morals
5. All forms of gambling, e.g. race track operation
6. Domestic market enterprises with paid-in equity capital of less than the equivalent of US$200,000
7. Domestic market enterprises which involve advanced technology or employ at least fifty (50) direct employees with paid-inequity capital
of less than the equivalent of US$100,000 (RA 7042 as amended by RA 8179)
The investment climate is also influenced by other laws such as the Intellectual Property Act of 1997, the E-commerce Act, The Retail Trade
Liberalization Act of 2000, and the New Revised Securities Act.

About the Firm
In this Chapter:
• About Manabat Sanagustin & Co., CPAs

• History
• Services
• Audit Services
• Tax
• Advisory

About Manabat Sanagustin & Co., CPAs
Manabat Sanagustin & Co., CPAs is the Philippine member firm of KPMG International,
a Swiss cooperative, and is one of the fastest growing practices in the Asia Pacific. We
offer Audit, Tax and Advisory services to our clients and work closely with them to help
them in their business.
History
The partnership of Manabat Sanagustin & Co., CPAs and KPMG International began
with a vision. Spurred by the desire to bring the country’s professional services to global
renown, Dr. Jaime Laya and Mario Mananghaya entered into an affiliation with KPMG
International in 1998.
Spurred by an ambitious vision to create the ultimate firm choice and offer the highest
quality of professional business services, they further steered the business to grow to a
strong 300-man firm in 2004. Dr. Jaime Laya retired in that same year while Mr. Manang-
haya continued to manage the business until his retirement in 2006.
In 2007, led by new and dynamic leaders, Roberto G. Manabat (Chairman & CEO),
Emmanuel P. Bonoan (COO & Vice-Chair, Tax & Corporate Services) and
Jorge Ma. S. Sanagustin (Vice-Chair, Audit & Risk Advisory Services), Manabat
Sanagustin & Co., CPAs has taken on the exciting challenge to bring about more
innovation in a very competitive industry. Today, dedication, drive and unflinching
adherence to the tenets of quality burn in the hearts and minds of more than 600 men
and women whose professionalism and passion for achievement cut them above the
rest.
The pioneering vision of its leaders continue to live on. . .

Manabat Sanagustin & Co., CPAs, as the Philippine member firm of the KPMG
network of independent firms, takes immense pride in this partnership. More than
the prestige it lends to the firm, this global link enables Manabat Sanagustin & Co., CPAs
to access resources and expertise to provide service beyond the extra mile.
Services
Manabat Sanagustin & Co., CPAs is one of the fastest growing KPMG member firms in
the Asia-Pacific and one of the county’s leading professional services providers. The firm
brings to its clients technical skills, solid practical experience and wide industry and
sector knowledge which help clients develop a competitive edge. The Firm applies a
rigorous approach in providing audit, tax, and advisory services to assist its clients in
defining their business, business goals or investments and works with them to achieve
those objectives.
We work closely with other regional KPMG member-firm offices to bring the wealth of
experience closer to our clients and at the same time deliver value-added services to
them as needed.
We understand that each industry has its own issues and special challenges.
Through education, industry focused training and years of firsthand experience, our
professionals have gained an in-depth understanding of a wide range of key industries
and issues faced by each industry.

Audit
Our Audit practice provides independent and objective assurance on information,
transactions and processes. We offer Financial Statement Audits and Attestation
Services. Audit quality is our top priority.
Our partners and professionals are trained to look closely at various aspects of financial
reporting so they are able to isolate risk. Integrity, quality and independence are the
building blocks of KPMG’s approach.
Our audit process does more than assess the financial information. It enables our
professionals to give appropriate consideration to the unique elements of the business
whose financial statements are being audited, its culture, the industry in which it
competes, competitive pressure, and the risk inherent within those elements.
In our commitment to share industry relevant experience and knowledge, we have a

separate audit group devoted to servicing the needs of financial institutions clients.
Tax
Attitudes to tax are changing. Organizations of all sizes are ever more exposed to new
trends in tax regulation, not just locally but globally. By thinking beyond the present and
beyond borders to deliver long-lasting value, our member firms’ understanding of tax gov-
ernance, specialist skills and deep industry knowledge help our clients to stay competi-
tive and compliant.
Business Tax Personal Tax
• Corporate and Business Tax • Taxation Services to

• International Corporate Tax Individuals (excluding IES)
• Indirect Tax • International Executive Services
• Mergers & Acquisitions
• Transfer Pricing
• Global Tax Management
• Legal Services
• Bookkeeping services
• Payroll Services
Advisory
Business is a series of decisions, some of which can make or break an organization.
All of them have the potential to affect performance and competitiveness.
Quality and timely business decisions result from adequate information, careful
analysis and a realistic appreciation of risk.
The quality of decision making (including strategy formulation) and the effectiveness of
its execution feeds directly into performance levels, the creation and preservation of
value and governance standards.
Of course, organizations are always responsible for their own business decisions.
However, many choose to augment their internal resources with the knowledge,
experience, market insights and judgment of skilled and trusted advisers.
Transactions and Restructuring
To help make your company more robust, it may be worth considering divesting
struggling and non-core assets and take advantage of lower prices to make strategic
acquisitions. You might also be considering expanding into other markets, either
domestically or internationally.
Given the difficult business conditions of recent times, a change of approach may be
needed as previously good clients may have become bad debts, credit not being readily

available and some suppliers no longer able to supply. Equally, for some businesses, the tougher business conditions have resulted in
underperformance from either an operational or financial perspective. Now is the time to address such issues to position your business
for any upturn.
Services Offered
Corporate Finance Restructuring Non-core Advisory Services

• Mergers & Acquisition Advice • Operational Restructuring • Bookkeeping and Payroll
• Financing • Financial Restructuring Services
• Valuations • Insolvency • Systems and ERP
• Projects • Turnaround Executive Management Implementation
• Crisis management • Recruitment
Transaction Services • Cash management
• Buy-side Assistance
• Sell-side Assistance
Performance and Technology
Successful organizations, whether they are businesses or public sector entities continually examine their performance, cost and policy
drivers, seeking out opportunities to enhance their efficiency and take advantage of opportunities arising from technological innovation
and changes in regulation, consumer behaviours, demographic trends and economic conditions.
Effective business and government leaders typically concentrate on key value drivers.
Services Offered
Business Performance Services IT Advisory

• Financial Management • ERP Advisory • IT Strategy & Performance
• Business Effectiveness • IT Attestation • IT Sourcing Advisory
• People and Change • IT Project Advisory • Information Protection and Business
• IRM in External Audit Continuity Advisory
• IRM in Internal Audit
Risk and Compliance
Risk management can’t be boiled down to a single metric or key performance indicator. Yet that doesn’t mean that a disciplined and
inclusive approach to risk management isn’t one of the keys to sustainable organizational success.
Organizations of all kinds are being expected to get better at identifying, understanding and managing the risks they face. To varying
degrees, all organizations are exposed to risks.
Given the breadth and complexity of the typical organizational risk profile, it’s increasingly recognized that risk management can’t be the
responsibility of a single individual or department — rather it has to be embedded across the organization, starting with the board and
the CEO.
Services Offered
Accounting Advisory Services Financial Risk Management

• Financial Reporting Advisory • Credit Risk • Actuarial Services & Financial
• Financial Reporting Processes Advisory • Market Risk Statement Support
• Capital Adequacy & • Operational Risk
Internal Audit Risk & Compliance Services Regulatory Services • Insurance Risk
• Internal Audit • Financial Instruments • Economic Capital
• Enterprise Risk Management Management Accounting
• Contract Compliance
• Governance, Regulatory & Compliance
• Sustainability
Forensic
• Investigations Fraud • Fraud Risk Management
• Regulatory Compliance (including Anti-money • Intellectual property and Contract Governance
laundering and anti bribery and corruption • Dispute Advisory Services
• Corporate Intelligence • Forencsic Technology service

Appendix
In this Chapter:
• Recent History: Democratization

• Languages
• Geography
• Climate
• Population
• Education
• Political and Legal System
• Government Agencies and Private Organizations’
Contact Information
• Partner Directory

Recent History: Democratization
• The Philippines officially became a Republic in 1946
• The year 1986 was a landmark year in the country’s efforts to become a
self-governing, full-fledged democratic country when President Ferdinand Marcos
was ousted from power and President Corazon Aquino assumed the presidency
• The Aquino Presidency (1986-1992) was marked by a revival of democratic

institutions and the restoration of civil liberties
• National reconciliation was the highlight of the Ramos Presidency (1992-1998) as

well as continuing political and economic reforms initiated by the previous
administration
• The short lived Estrada Presidency (1998-2001) governed via a platform of populism
with poverty alleviation as its centerpiece
• Former President Gloria Macapagal-Arroyos presidency (2001-2010) has made the

economy the focus of her presidency. Economic growth in terms of GDP averaged
4.6 percent during the Arroyo presidency from 2001 up to the end of 2003, to 5.5
percent in 2006. 2007 saw the country’s GDP leapfrog into a 7.3 percent growth
as continuing fiscal reforms have allowed the government to make headway in its
development initiatives. In 2008, the Philippines’ GDP grew 4.6 percent, way below
the three-decade high growth of 7.1 per cent in 2007. The country’s economic
growth for 2009 is 4.6 percent. For 2010, the GDP is forecasted to be at 2.6 percent
to 3.6 percent.
• Benigno Aquino III who was elected on 10 May 2010 is the current President of the
Republic of the Philippines. His main platform is good governance and the elimination
of corrupt practices in the government.
Languages
• Over 87 languages and dialects belonging to the Malayo-Polynesian linguistic family
• Three principal languages: Cebuano, Tagalog, and Ilocano. Filipino is the official
language
• English is the language of business and government
• In January 2003, President Gloria Macapagal-Arroyo ordered the Department of

Education to restore English as the medium of instruction in all schools and
universities
Geography
• Located in Southeast Asia
• Area: 300,000 sq. km. (117,187 square miles)
• Three major geographical areas: Luzon, Vizayas, Mindanao
• Major cities (2005 estimate): Capital - Manila (pop. 11.29 million in the
metropolitan area);
• Other Cities - Davao City (1.33 million); Cebu City (0.82 million)
• Terrain: Archipelago composed of 7,107 Islands, 65% mountainous, with narrow

coastal lowlands

Climate
• Tropical, sitting astride a typhoon belt.
• Three seasons: Rainy (June to October); Cool and Dry (November to February); Hot and Dry (March-May)
• Average Temperature: 27 degrees Celsius (81 degrees Fahrenheit); Average Humidity: 78 percent.
• Year-round Average Temperature Range: 23-32 degrees Celsius.
Population
• 88.57 million (National Statistics Office, as of April 16, 2008)
• Population growth rate: 2.04 percent (National Statistics Office, POPCEN 2007 data)
• Languages spoken: Filipino, English, and other regional dialects
• Literacy Rate: 88.6% of total population – the highest in Southeast Asia (Hong Kong and Taiwan included)
Education
• 10 years of Public Elementary and High School education subsidized by the government
• English is part of the curriculum and is the medium of instruction for most subjects
• One of the highest literacy rates in Asia : Simple Literacy Rate: 88.6 percent: Functional Literacy Rate: 84.1 percent
(2003 FLEMMS, National Statistics Office, Department of Education)
Political and Legal System

• Type: Republic
• Independence: 1946
• Current constitution: Ratified on 11 February 1987
• Branches: Executive-President and Vice President; Legislative-Bicameral legislature; Judicialindependent
• Administrative Subdivisions: 15 regions and Metro Manila (National Capital Region), 79 provinces, 115 cities
• Political Parties: Lakas-Christian Muslim democrats, Nationalist People’s Coalition, Laban ng Demokratikong Pilipino, Liberal Party,
Aksyon Demokratiko, Partidong Demokratikong Pilipino-Lakas ng Bayan, and other small parties
• Suffrage: Universal, but not compulsory, at age 18

The following are the contact information of government
agencies and private organizations that can provide information
and assistance to investors.
Bangko Sentral ng Pilipinas (BSP)
Central Bank Building, A Mabini St., Malate, Manila
Tel. No.: +63 2 524 7011
Fax No.: +63 2 523 6210
Website: http://www.bsp.gov.ph
Board of Investments (BOI)

Industry and Investments Building, 385 Sen. Gil Puyat Ave., Makati City
Tel. Nos.: +63 2 897 6682 , 890 1332 and 895 3641
Fax No.: +63 2 895 3512
Website: http://www.boi.gov.ph
Bureau of Labour and Employment Statistics

3F, DOLE Building, Gen. Luna cor. Muralla Sts., Intramuros, Manila
Tel. No.: +63 2 527 3000 loc. 315
Fax No.: +63 2 527 5506
Website: http://www.bles.dole.gov.ph
Clark Development Corporation

Building 2122 Elpidio Quirino St., Clark Special Economic Zone, Clark Field, Pampanga
Tel. No.: +63 45 599 9000
Website: http://www.clark.com.ph
Department of Trade and Industry

DTI International Building, 375 Senator Gil Puyat Avenue, Makati City
Tel. No.: +63 2 751 0384
Fax No.: +63 2 895 6487
Website: http://www.dti.gov.ph
Export Assistance Network

Bureau of Export Trade Promotion, Department of Trade and Industry
DTI International Building, 375 Sen. Gil Puyat Ave., Makati City
Tel. No.: +63 2 890 4723 and 890 4693
Fax No.: +63 2 899 0111
Website: http://www.dti.gov.ph/contentment/66/68/59.jsp
Intellectual Property Office (IPO)

IPO Building, 351 Senator Gil Puyat Ave, Makati, Metro Manila
Tel. Nos.: +63 2 752 5450 to 65
Fax No.: +63 2 897-1724
Website: http://www.ipophil.gov.ph
International Tax Affairs Division of the Bureau of Internal Revenue

Room 811, National Office Building, Bureau of Internal Revenue, Diliman, Quezon City
Tel. Nos.: +63 2 927 0022 and 926 5729
Fax No.: +63 2 926 3420
Website: http://www.bir.gov.ph
National Economic and Development Authority (NEDA)

NEDA sa Pasig Building, Blessed Maria Escriva Drive, Pasig City
Tel. Nos.: +63 2 631 0945 to 68
Fax No.: +63 2 631 3747
Website: http://www.neda.gov.ph
National Statistical Coordination Board (NSCB)

Midland Buendia Building, 403 Senator Gil Puyat Ave, Makati City
Tel. Nos.: +63 2 895 2436 or 2767
Fax No.: +63 2 890 8456
Website: http://www.nscb.gov.ph
National Statistics Office (NSO)

Solicarel Bldg., R. Magsaysay Blvd, Sta. Mesa, Manila
Tel. Nos.: +63 2 716 0807 or 0734
Fax No.: +63 2 713 7074
Website: http://www.census.gov.ph

Optical Media Board (OMB)
35 Scout Limbaga Street, Quezon City
Tel. No.: +63 2 374 0176
Fax No.: +63 2 374 0217
Philippine Chamber of Commerce and Industry (PCCI)

3rd Floor, ECC Building, 355 Sen. Gil Puyat Avenue, Makati City
Tel. No.: +63 2 896 4549
Fax No.: +63 2 899 1727
Website: http://www.philippinechamber.com
Philippine Economic Zone Authority (PEZA)

6F Almeda Building III, Roxas Blvd cor. San Luis St., Pasay City
Tel. Nos.: +63 2 551 3454 or 3455
Fax No.: +63 2 891 6380
Website: http://www.peza.gov.ph
Philippine Export-Import Credit Agency (PHILEXIM) and

Trade and Investment Development Corporation of the Philippines (TIDCORP)
4F Citibank Plaza, 8741 Paseo de Roxas, Makati City
Tel. No.: +63 2 893 4204
Fax No.: +63 2 893 4852
Website: http://www.philexim.gov.ph
Philippine Franchise Association

Unit 701 OMM Citra, San Miguel Ave., Ortigas, Pasig City
Tel. Nos.: +63 2 687 0366 to 67
Fax No.: +63 2 687 0635
Website: http://www.philippinefranchiseassociation.com.
Philippine Retailers Association

Unit 2610 Jollibee Plaza, F. Ortigas Jr. Rd, Ortigas, Pasig City
Tel. No.: +63 2 687 4180 and 687 4181
Fax No.: +63 2 636 0825
Website: http://www.philretailers.com
Privatization Council
Department of Finance Building, BSP Complex, A Mabini St., Malate, Manila
Tel. No.: +63 2 524 1633 and 524 5727
Fax No.: +63 2 523-5143
Privatization Management Office

Privatization Management Office Building, 104 Gamboa St, Legaspi Village, Makati City
Tel. No.: +63 2 893 1209 and 893 2383
Fax No.: +63 2 893 3453
Website: http://www.dof.gov.ph/eservices.asp?id=10.
Securities and Exchange Commission (SEC)

SEC Building, EDSA near Ortigas Ave, Greenhills, Mandaluyong, Metro Manila
Tel. Nos.: +63 2 584 7256 and 584 1119
Fax No.: +63 2 725 5239
Website: http://www.sec.gov.ph
Small Business Guarantee and Finance Corp (SBGFC)

17F 139 Corporate Center, 139 Valero St., Salcedo Village, Makati City
Tel. No.: +63 2 751 1888
Fax No.: +63 2 813 5726
Website: http://www.sbgfc.org.ph
Subic Bay Metropolitan Authority (SBMA)

Building 229, Waterfront Road, Subic Bay Freeport Zone
Tel. No.: +63 47 252 4895, 252 4381, 252 4382, 252 4000 and 252 4004
Fax No.: +63 47 252 3014
Website: http://www.sbma.com

Partner’s Directory
Roberto G. Manabat
Chairman & Chief Executive Officer
rgmanabat@kpmg.com.ph
Emmanuel P. Bonoan
Chief Operating Officer, Vice Chairman
Tax and Corporate Services
ebonoan@kpmg.com.ph
Jorge Ma. S. Sanagustin

Vice Chairman for Audit Services
jsanagustin@kpmg.com.ph
Partners Principals
Henry D. Antonio Jose P. Javier Jr. Yoshiaki Endo

hantonio@kpmg.com.ph jpjavier@kpmg.com.ph Yendo1@kpmg.com.ph
Emerald Anne C. Bagnes Tomas G. Mahinay Elizabeth R. Locsin

ebagnes@kpmg.com.ph tmahinay@kpmg.com.ph elocsin@kpmg.com.ph
Pacifico M. Castaneda Ricardo G. Manabat Herminigildo G. Murakami

pcastaneda@kpmg.com.ph rmanabat@kpmg.com.ph hmurakami@kpmg.com.ph
Jose C. Catequista Virgilio L. Manguilimotan Maria Carmela M. Peralta

jcatequista@kpmg.com.ph vmanguilimotan@kpmg.com.ph mperalta@kpmg.com.ph
Paul Bernard D. Causon Ador C. Mejia Vicente Julian A. Sarza

pcauson@kpmg.com.ph acmejia@kpmg.com.ph vsarza@kpmg.com.ph
Sharon G. Dayoan Reginald C. Nery Ma. Georgina J. Soberano

sdayoan@kpmg.com.ph rcneri@kpmg.com.ph gjsoberano@kpmg.com.ph
Ernesto T. Diaz Wilfredo Z. Palad Roberto L. Tan

etdiaz@kpmg.com.ph wpalad@kpmg.com.ph rltan@kpmg.com.ph
Ryan R. Gabinete Jimmy S. Quiñones

rgabinete@kpmg.com.ph jquinones@kpmg.com.ph
Michael Arcatomy H. Guarin

mguarin@kpmg.com.ph
ABCD
Manabat Sanagustin & Co.

Certified Public Accountants
our values
We lead by example
We work together
We respect the individual
We seek the facts and provide insight
We are open and honest in our communication
We are committed to our communities
Above all, we act with integrity

A Guide for Businessmen and Michael Arcatomy H. Guarin Elizabeth R. Locsin
Investors 2010 - Philippines Atty. Herminigildo G. Murakami Editor-in-Chief
Atty. Maria Carmela M. Peralta
Gillian Allison D. De Guzman
Raphael Edward B. Madarang Assistant Editor
Joseph Benedict G. Gesmundo
Writers Carlo Antonio B. Mangoba
Art Direction and Lay-out
kpmg.com.ph
For information on investment in the Philippines, please contact:
Roberto G. Manabat
Chairman & CEO
Emmanuel P. Bonoan
COO and Vice Chairman Tax
Jorge Ma. S. Sanagustin

Vice Chairman Audit Services
Manila - Head Office: Subic Office: Iloilo Office:
9th/F KPMG Center Units 142/144 & 146/148 3rd Floor, ATM Business Center
Corner Jalandoni - Ledesma Street
6787 Ayala Avenue Ground Flr., Alpha Bldg.
Iloilo City 5000
Makati City 1226, Metro Manila Subic International Hotel Compound Philippines
Rizal corner Sta. Rita Roads
Telephone +63 (2) 885 7000 Subic Bay Freeport Zone 2222 Telephone +63 (33) 321 3821
Fax +63 (2) 894 1985 +63 (33) 321 3822
Telephone +63 (47) 252 2825 Telefax +63 (33) 321 3823
E-mail manila@kpmg.com.ph
+63 (47) 252 2898 E-mail iloilo@kpmg.com.ph
Telefax +63 (47) 252 2826
E-mail subic@kpmg.com.ph
Cebu Office:
Bacolod Office:
Unit 502, 5th Floor
Keppel Center Suite 3
Doll Building
Samar Loop corner
6th Street, Bacolod City 6100
Cardinal Rosales Avenue
Cebu Business Park Telephone +63 (34) 433 1962
Cebu City 6000 +63 (34) 434 9225
Telefax +63 (34) 434 8015
Telephone +63 (32) 233 9339 E-mail bacolod@kpmg.com.ph
Telefax +63 (32) 233 9327
E-mail cebu@kpmg.com.ph
© 2010 Manabat Sanagustin & Co., CPAs, a Philippine partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity.
Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date
it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional
advice after a thorough examination of the particular situation. The views and opinions expressed herein are those of the authors and
interviewees and do not necessarily represent the views and opinions of KPMG International or KPMG member firms.

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Manabat Sanagustin & Co.

A Guide for Businessmen

A Guide For Businessmen and Investors 2010 1

2 A Guide For Businessmen and Investors 2010

With the world economy recovering from financial turmoil,

In these trying times, the Philippines offers investors

The Philippines is an attractive investment destination in the

This guide provides an overview of the Philippines dynamic

4 A Guide For Businessmen and Investors 2010

Getting Listed in the

Business and Economic

Foreign Trade and Investments 64

About the Firm 72

A Guide For Businessmen and Investors 2010 5

Manabat Sanagustin & Co., CPAs

Demand of Power in the Philippines

1 PSALM Industry Prospectus for 2010

A Guide For Businessmen and Investors 2010 7

In Mindanao, the Department of Energy (DOE) has forecasted an annual average

Whole Sale Electric Spot Market (WESM)

As the entire archipelago becomes interconnected through the development of power

Privatization of NPC assets The Philippines is among the top

Investors in the energy sector have praised

8 A Guide For Businessmen and Investors 2010

The Feed-In Tariff System and the Casecnan 140

A Guide For Businessmen and Investors 2010 9

any of the following methods of

Value-added tax zero-rated value-added tax on

(ii) zero-rated value added tax on

Cash Incentive of Renewable N/A

10 A Guide For Businessmen and Investors 2010

A Guide For Businessmen and Investors 2010 11

The law requires REITs to distribute

REITs are highly regulated and the law

Source: “Real Estate Industry Overview- CB Richard Ellis

5 “Real Estate Industry Overview” – CB Richard Ellis

12 A Guide For Businessmen and Investors 2010

Stable monetary policies by the BSP, as

A Guide For Businessmen and Investors 2010 13

14 A Guide For Businessmen and Investors 2010

Some infrastructure projects slated for bid-out or construction were delayed. As an

Subic-Clark-Tarlac Expressway (SCTEx) – SCTEX is currently considered as the longest

A Guide For Businessmen and Investors 2010 15

Tarlac-La Union Expressway (TLEx) – This project covers the construction of an

16 A Guide For Businessmen and Investors 2010

Major Players in Transport Infrastructure

Summary of Transport Projects

Awarded Projects TLEx NLEx

Private sector participation is seen to increase should the government opt to

A Guide For Businessmen and Investors 2010 17

An incoming administration presented gray areas in terms of the policy directives

Valuation and Financial Due Diligence – It is seen that a number of

Commercial Due Diligence – Investors need to assess the viability of a certain

Financial and Economic Modeling – Estimating how much capital is needed

Structuring – For transport infrastructure projects, it is common practice to

18 A Guide For Businessmen and Investors 2010

continued on next page

A Guide For Businessmen and Investors 2010 19

• other conditions such as organ

continued on next page

20 A Guide For Businessmen and Investors 2010

c. Drugs and medicines indicated for

f. Drugs and medicines that are included